The Reserve Bank of India has said bond-forward trades should use Level 3 inputs for valuation, bringing attention to the way banks assess certain bond derivative transactions.
Valuation guidance for bond-forward trades
The RBI’s position relates specifically to the valuation of bond-forward trades. It indicates that Level 3 inputs should be applied when valuing these transactions.
The statement places the treatment of bank valuations at the centre of the issue, although the available information does not provide further details on the trades involved or any additional measures.
Importance for banks
Valuation methodology is relevant to how financial institutions assess transactions on their books. The RBI’s direction gives banks a stated approach for the valuation of the specified bond-forward trades.