(Source: Bloomberg)

Value Of State Government Securities Should Be On Observed Prices, Says RBI

The Reserve Bank of India said today that securities issued by each state government should be valued based on observed prices.

As of now the state government securities are valued applying the Yield to Maturity method with a uniform mark-up of 25 basis points above the yield of the central government securities of equivalent maturity.

“The valuation of traded state government securities shall be at the price at which they have been traded in the market,” RBI said today. In case of non-traded state government securities, the valuation shall be based on the state-specific weighted average spread over the yield of the central government securities of equivalent maturity, as observed at primary auctions, the regulator added.

The detailed guidelines on this will be issued by June 20.

As per the existing roadmap, scheduled commercial banks have to reach the minimum Liquidity Coverage Ratio of 100 percent by Jan. 1 next year.

Presently, the assets allowed as Level 1 High Quality Liquid Assets (HQLAs) for the purpose of computing LCR of banks include government securities in excess of the minimum SLR requirement, within the mandatory SLR requirement, government securities to the extent allowed by the RBI under marginal standing facility (MSF) and under Facility to Avail Liquidity for Liquidity Coverage Ratio (FALLCR).

“For the purpose of computing LCR, it has been decided that, in addition to the above-mentioned assets, banks will be permitted to reckon as Level 1 HQLAs government securities held by them up to another 2 per cent of their NDTL under FALLCR within the mandatory SLR requirement,” RBI said today.