In a significant move to address financial stress in the cooperative banking sector, the Ministry of Cooperation has written to the Governor of the Reserve Bank of India, seeking regulatory relief for State Cooperative Banks (StCBs) facing valuation losses on their SLR investments.
The communication dated April 13, 2026, follows a representation received from the National Federation of State Cooperative Banks, highlighting the difficulties being faced by StCBs due to mark-to-market losses on government securities classified under the Available for Sale (AFS) category.
As per extant RBI guidelines, banks are required to maintain SLR investments in government securities. Further, securities under the AFS category are subject to periodic valuation, wherein net depreciation is required to be fully provided for, while appreciation is not taken into account.
According to the letter, during the current financial year, global geopolitical developments have led to volatility in financial markets, resulting in a decline in bond prices and consequent valuation losses on SLR securities. This has adversely impacted the financial position of StCBs, as they are required to recognize the entire depreciation within the same financial year.
NAFSCOB has also referred to RBI’s March 28, 2005 guidelines, under which Primary Urban Cooperative Banks (UCBs) were permitted to amortize losses arising from shifting SLR securities from AFS to HTM category over a period of five years.
In this context, the Ministry has requested RBI to consider permitting amortization of valuation losses on SLR securities held under AFS as on March 31, 2026, over a period of five years in equal annual instalments, with a view to mitigating immediate financial stress on StCBs.
It may be recalled that the Reserve Bank of India had recently advised Urban Co-operative Banks (UCBs) to submit their concerns directly on its Daksh portal, following a representation by the Maharashtra Urban Co-operative Banks’ Federation on similar valuation stress in government securities.
In its response, RBI stated that UCBs should share granular, bank-level inputs through the portal, indicating that the central bank is in the process of assessing the issue before taking any regulatory decision.
The federation had highlighted that rising yields in the Government Securities (G-Sec) market have triggered mark-to-market (MTM) losses in SLR portfolios under the AFS category, which could significantly impact FY26 financials of UCBs, including profitability and capital adequacy.
