Posts
RBI of India has advised the banks to fix exposure
limits to specific industry or sectors and has prescribed regulatory limits on
banks’ exposure to
·
single or group borrowers in India,
·
advances against shares, convertible
debentures /bonds, units of equity-oriented mutual funds
·
investments in shares, convertible
debentures /bonds, units of equity-oriented mutual funds
·
Venture Capital Funds (VCFs).
GUIDELINES
Credit Exposures to Single/Group
Borrowers
Ceilings
The exposure limits would be 15% of Tier I and Tier
II capital in case of a single borrower and 40% in the case of a borrower
group.
Bank’s clearing exposure to a QCCP[Qualifying
Central Counter party] will be kept out of the exposure ceiling of 15%.
Clearing exposure would include trade exposure and default fund exposure. Other
exposures to QCCPs such as loans, credit lines, investments in the capital of CCP, liquidity facilities, etc. will
continue to be within the existing exposure ceiling of 15%. However, all
exposures of a bank to a non-QCCP should be within this exposure ceiling of 15 %.
Credit exposure to a single borrower may exceed 15%
by an additional 5% in case of infrastructure projects. Credit exposure to a
group may exceed 40% by an additional 10%, in case of infrastructure projects.
In addition to the above concessions, banks may
consider enhancement of the exposure to a borrower by further 5% subject to
disclosures in the Annual Reports of the Bank.
The exposure limit in respect of
single borrower has been raised to 25% in respect of Oil Companies who
have been issued non SLR Oil Bonds by Government of India. In addition to this,
banks may consider enhancement of a further 5% of capital funds in exceptional
cases.
The bank should make disclosures in the ‘Notes on
account’ in their annual balance sheet in respect of the exposures where the
bank had exceeded the prudential exposure limits during the year.
Exposures to NBFCs
The exposure of a bank to a single NBFC / NBFC-AFC
(Asset Financing Companies) should not exceed 10% / 15% respectively, of the
bank's capital funds as per its last audited balance sheet. Banks may assume
exposures up to 15%/20% respectively, where the excess exposure is used for
onlending to infrastructure sector. Exposure of a bank to Infrastructure Finance
Companies (IFCs) should not exceed 15%, which can be increased to 20% if the
same is for onlending to infrastructure sector. Further, banks may also
consider fixing internal limits to such exposures. Infusion of capital funds
after the published balance sheet date may also be taken into account for
reckoning capital funds. Banks should obtain an external auditor’s certificate
and submit the same to RBI before reckoning the additions to capital funds.
Lending under Consortium
Arrangements
The exposure limits will also be applicable to
lending under consortium arrangements.
Bills discounted under Letter of
Credit (LC)
Where the bills discounting/purchasing/negotiating
bank and LC issuing bank are different entities, bills purchased/discounted/negotiated
under LC not ‘under reserve’, will be treated as an exposure on the LC
issuing bank. However, in cases where the two entities are part of the same
bank, then the exposure should be taken on the third party/borrower. In the
case of negotiations ‘under reserve’, the exposure should be treated as
on the borrower.
If any bank, exceeds the
regulatory ceiling, due to banks’ financing of acquisition of PSU shares under
disinvestment programmes, RBI will consider relaxation on a case by case basis,
provided that the bank’s total exposure to the borrower and net of its exposure
in this category, should be within the prudential exposure ceiling prescribed
by RBI.
Exemptions
Rehabilitation of Sick/Weak Industrial
Units
The exposure limits are not applicable to credit
facilities granted to weak/sick industrial units under rehabilitation packages.
Food credit
Limits allocated directly by the RBI for food
credit, will be exempt from the ceiling.
Guarantee by the Government of India
The exposure limit is not applicable where the dues
are fully guaranteed by the Government of India.
Loans against Own Term Deposits
Facilities granted against the lien on bank’s own
term deposits should not be reckoned for computing the exposure.
Exposure on NABARD
Exposure limit will not be applicable to Bank’s exposure
on NABARD. The individual banks are free to determine the size of the exposure
to NABARD. However, banks may note that there is no exemption from the
prohibitions relating to investments in unrated non-SLR securities.
Definitions
Exposure
Exposure shall include credit exposure and
investment exposure. The sanctioned limits or outstandings, whichever are
higher, shall be reckoned for arriving at the exposure limit. However, in the
case of fully drawn term loans, the outstanding may be reckoned as the
exposure.
Banks shall compute their credit exposures, arising
on account of the interest rate & foreign exchange derivative transactions
and gold, using the 'Current Exposure Method', as detailed below. Banks may
exclude 'sold options', provided the entire income is realised.
Bilateral netting of
Mark-To-Market (MTM) cannot be permitted. Accordingly, banks should count their
gross positive MTM value for the purposes of capital adequacy as well as for
exposure norms.
Current Exposure Method
(i) The
credit equivalent amount of a market related off-balance sheet transaction as
per current exposure method is the sum of current credit exposure and potential
future credit exposure of these contracts. Banks may exclude 'sold options',
provided the entire income is realized.
(ii) Current
credit exposure is the sum of the positive mark-to-market value of these
contracts.
(iii) Potential
future credit exposure is determined by multiplying the notional principal
amount of each of these contracts by the relevant add-on factor indicated
below.
CCF
for market related off-balance sheet items
|
||
Residual Maturity
|
Credit conversion factors
|
|
Interest Rate Contracts
|
Exchange Rate Contracts & Gold
|
|
One year or less
|
0.50%
|
2.00%
|
Over one to five years
|
1.00%
|
10.00%
|
Over five years
|
3.00%
|
15.00%
|
(iv)
For contracts with multiple exchanges of
principal, the add-on factors are to be multiplied by the number of remaining
payments in the contract.
(v) For
contracts that are structured to settle outstanding exposure following
specified payment dates and where the terms are reset such that the market
value of the contract is zero on these specified dates. The residual maturity
would be set equal to the time until the next reset date. However, in the case
of interest rate contracts which have residual maturities of
more than one year and meet the foregoing criteria, the CCF or "add-on
factor" applicable shall be subject to a floor of 1.00 per cent.
(vi) No
potential future credit exposure would be calculated for single currency
floating /floating interest rate swaps; the credit exposure on these contracts
would be evaluated solely on the basis of their mark-to-market value.
(vii) Potential
future exposures should be based on effective notional amounts. If the stated
notional amount is leveraged or enhanced, banks must use the effective notional
amount while determining the potential future exposure.
Credit Exposure
Credit exposure comprises the
following elements:
(a)
all types of funded and non-funded
credit limits.
(b)
facilities extended by way of equipment
leasing, hire purchase finance and factoring services.
Investment Exposure
a)
Investment exposure comprises the
following elements:
(i) investments
in shares and debentures of companies.
(ii) investment
in PSU bonds
(iii) investments
in Commercial Papers (CPs).
b)
Banks’ investments in debentures/ bonds
/ security receipts / pass-through certificates (PTCs) issued by an SC / RC as
compensation will constitute exposure on the SC / RC. Banks will be allowed, in
the initial years, to exceed the prudential exposure ceiling on a case-to-case
basis.
c)
The investment made by the banks in
bonds and debentures of corporates which are guaranteed by a PFI will be
treated as an exposure by the bank on the PFI and not on the corporate.
d) Guarantees
issued by the PFI to the bonds of corporates will be treated as an exposure by
the PFI to the corporates to the extent of 50 per cent, whereas the exposure of
the bank on the PFI guaranteeing the corporate bond will be 100 per cent. The
PFI before guaranteeing the bonds/debentures should, however, take into account
the overall exposure of the guaranteed unit to the financial system.
Capital Funds
Capital funds will comprise Tier I and Tier II
capital as per the accounts as on March 31 of the previous year. However, the
infusion of capital under Tier I and Tier II, either through domestic or
overseas issue, after the published balance sheet date will also be taken into
account for determining the exposure ceiling.
Group
a)
The concept of 'Group' and the task of
identification of the borrowers belonging to specific industrial groups is left
to the perception of the banks. The group may be decided on the basis of
commonality of management and effective control. In so far as public sector
undertakings are concerned, only single borrower exposure limit would be
applicable.
b)
In the case of a split in the group, if
the split is formalised the splinter groups will be regarded as separate
groups. If banks and financial institutions have doubts about the bona fides of
the split, a reference may be made to RBI for its final view.
Review
An annual review of the implementation of exposure
management measures may be placed before the Board of Directors before the end
of June.
Internal Exposure Limits
Fixing of Sectoral Limits
Apart from limiting the exposures to a single or a
Group of borrowers, banks may also consider fixing internal limits for
aggregate commitments to specific sectors. The limits so fixed may be reviewed
periodically and revised, as necessary.
Unhedged Foreign Currency Exposure of
Corporates
Foreign currency loans should be extended on the
basis of a well laid out policy on hedging. The policy may exclude:
•
Where forex loans are extended to
finance exports, banks may not insist on hedging as there are uncovered
receivables to cover the loan amount.
•
Where the forex loans are extended for
meeting forex expenditure.
The policy should also cover unhedged foreign
exchange exposure of all their clients. Further, for arriving at the aggregate
unhedged foreign exchange exposure of clients, their exposure from all sources
should be taken into account.
Banks which have large exposures (about US$25 million)
should monitor and review the unhedged portion of the foreign currency
exposures on a monthly basis, through a suitable reporting system. The review in
case of SMEs should also be done on a monthly basis. In all other cases, it
should be done on a quarterly basis.
In the case of consortium/multiple banking
arrangements, the lead role in monitoring would be assumed by the consortium
leader/bank having the largest exposure.
Banks are also advised to adhere to the instructions
relating to information sharing among themselves.
Excessive risk taking by
corporates could lead to severe distress and credit loss to their bankers. Banks
are advised that, they should put in place a proper mechanism to evaluate the
risks arising out of unhedged foreign currency exposure of corporates and price
them in the credit risk premium while extending credit facilities to
corporates. Banks may also consider stipulating a limit on unhedged position of
corporates.
Exposure to Real Estate
(i)
Banks should frame board approved prudential
norms regarding the ceiling on the total amount of real estate loans,
single/group exposure limits, margins, security, repayment schedule and
availability of supplementary finance.
(ii) The
exposure to entities for setting up SEZs or for acquisition of units in SEZs
would be treated as exposure to commercial real estate for the purpose of risk
weight and capital adequacy. Banks would, therefore, have to make provisions,
as also assign appropriate risk weights for such exposures. The above exposure
may be treated as exposure to Infrastructure sector only for the purpose of
Exposure norms.
Exposure to Leasing, Hire Purchase and
Factoring Services
Banks may undertake leasing, hire purchase and
factoring activities departmentally. Where banks undertake these activities, their
exposure to each of these activities should not exceed 10 per cent of total advances.
Exposure to Indian Joint
Ventures/Wholly-owned Subsidiaries Abroad and Overseas Step-down Subsidiaries
of Indian Corporates
Banks are allowed to extend credit/non-credit
facilities to the above referred ventures. Banks are also permitted to provide,
buyer's credit/acceptance finance to overseas parties for facilitating export
of goods & services from India. The above exposure will be subject to a
limit of 20% of banks’ unimpaired capital funds (Tier I and Tier II capital) and
would be subject to the conditions laid down in the Master
Circular on ‘Loans and Advances.
Banks’ Exposure to Capital Markets –
Rationalisation of Norms
The prudential capital market exposure norms
prescribed for banks have been rationalized in
terms of base and coverage. The revised guidelines are as under:
Components of Capital Market Exposure
(CME)
Banks' capital market exposures would include their
direct and indirect exposures. The aggregate exposure of banks to capital markets
in all forms would include the following:
i.
direct investment in equity shares,
convertible bonds, convertible debentures and units of equity-oriented mutual
funds the corpus of which is not exclusively invested in corporate debt;
ii.
advances against shares/bonds/debentures
or other securities or on clean basis to individuals for investment in shares,
convertible bonds, convertible debentures, and units of equity-oriented mutual
funds;
iii.
advances for any other purposes where
shares or convertible bonds or convertible debentures or units of equity
oriented mutual funds are taken as primary security;
iv.
advances for any other purposes secured
by the collateral security of shares or convertible bonds or convertible
debentures or units of equity oriented mutual funds;
v.
secured and unsecured advances to
stockbrokers and guarantees issued on behalf of stockbrokers and market makers;
vi.
loans sanctioned to corporates against
the security of shares / bonds/ debentures or other securities or on clean
basis for meeting promoter’s contribution to the equity of new companies in
anticipation of raising resources;
vii.
bridge loans to companies against
expected equity flows/issues;
viii. underwriting
commitments taken up by the banks in respect of primary issue of shares or
convertible bonds or convertible debentures or units of equity oriented mutual
funds.
ix.
financing to stockbrokers for margin
trading;
x.
all exposures to Venture Capital Funds
(both registered and unregistered).
xi.
Irrevocable Payment Commitments issued
by custodian banks in favour of stock exchanges.
Statutory limit on shareholding in
companies
While granting any advance against shares,
underwriting any issue of shares, or acquiring any shares on investment account
or even in lieu of debt of any company, the statutory provisions of Section
19(2) of the Banking Regulation Act, 1949 should be strictly observed.
Regulatory Limit
A
Solo Basis
The aggregate exposure of a bank to the capital
markets in all forms should not exceed 40 per cent of its net worth, as on
March 31 of the previous year. Within this ceiling, the bank’s direct
investment in shares, convertible bonds / debentures, units of equity-oriented
mutual funds and Venture Capital Funds (VCFs) should not exceed 20 per cent of
its net worth.
B
Consolidated Basis
The aggregate exposure of a consolidated bank to
capital markets should not exceed 40 per cent of its consolidated net worth as
on March 31 of the previous year. Within this overall ceiling, the direct
exposure by way of the consolidated bank’s investment in shares, convertible
bonds / debentures, units of equity-oriented mutual funds and Venture Capital
Funds (VCFs) should not exceed 20 per cent of its consolidated net worth.
Note: A ‘consolidated bank' is
defined as a group of entities, which include a licensed bank, which may or may
not have subsidiaries.
The above-mentioned ceilings are the maximum
permissible and a bank is free to adopt a lower ceiling, keeping in view its
overall risk profile and corporate strategy.
If acquisition of equity shares on account of the
restructuring proposal, results in exceeding
Capital Market Exposure (CME) limit, the same will not be considered as a
breach of regulatory limit. However, this will require reporting to RBI and disclosure in the Annual Financial Statements.
On account of banks financing
acquisition of PSU shares under the Government of India disinvestment
programmes, if any bank is likely to exceed the regulatory ceiling, RBI will
consider requests for relaxation, subject to safeguards regarding margin,
bank’s exposure to capital market, internal control and risk management
systems, etc. However it is to be ensured that the bank’s exposure to capital
market in all forms shall be within the regulatory ceiling limit even after the
relaxation.
Definition of Net Worth
Paid-up capital
plus Free Reserves including Share Premium but
excluding Revaluation Reserves
plus Investment Fluctuation Reserve
plus credit balance in Profit & Loss account,
less debit balance in Profit and Loss account
less Accumulated Losses and Intangible Assets.
No general or specific provisions should be included.
Infusion of capital through equity shares, after the published balance sheet
date, may be taken into account. Banks should however, obtain an external
auditor’s certificate on completion of the augmentation and submit the same to
the RBI.
Items excluded from Capital Market
Exposure
The following items would be excluded from the
aggregate exposure ceiling of 40 per cent of net worth and direct investment
exposure ceiling of 20 per cent of net worth :
i.
Banks’ investments in own subsidiaries,
joint ventures, sponsored Regional Rural Banks (RRBs) and investments in shares
and convertible debentures, convertible bonds issued by institutions forming
crucial financial infrastructure such as National Securities Depository Ltd.
(NSDL), Central Depository Services (India) Ltd. (CDSL), National Securities
Clearing Corporation Ltd. (NSCCL), National Stock Exchange (NSE), Clearing
Corporation of India Ltd., (CCIL), a credit information company which has
obtained Certificate of Registration from RBI and of which the bank is a
member, Multi Commodity Exchange Ltd. (MCX), National Commodity and Derivatives
Exchange Ltd. (NCDEX), National Multi-Commodity Exchange of India Ltd.
(NMCEIL), National Collateral Management Services Ltd. (NCMSL), National
Payments Corporation of India (NPCI) and United Stock Exchange of India Ltd.
(USEIL) and other All India Financial Institutions. After listing, the
exposures in excess of the original investment would form part of the Capital
Market Exposure.
ii.
Tier I and Tier II debt instruments
issued by other banks;
iii.
Investment in Certificate of Deposits
(CDs) of other banks;
v.
Non-convertible debentures and
non-convertible bonds;
vi.
Units of Mutual Funds under schemes
where the corpus is invested exclusively in debt instruments;
vii.
Shares acquired by banks as a result of
conversion of debt/overdue interest into equity under Corporate Debt
Restructuring (CDR) mechanism;
viii
Term loans sanctioned to Indian
promoters for acquisition of equity in overseas joint ventures / wholly owned
subsidiaries under the refinance scheme of Export Import Bank of India (EXIM
Bank).
ix.
Banks may exclude their own underwriting
commitments and the commitments of their subsidiaries, through the book running
process.
x.
Promoter’s shares in the SPV of an
infrastructure project pledged to the lending bank of the project.
xi
banks exposure to brokers under the
currency derivates segment
Computation of exposure
Loans/advances/guarantees issued
for capital market operations would be reckoned with reference to sanctioned
limits or outstanding, whichever is higher. In case of fully drawn term loans, banks
may reckon the outstanding balance. Further, banks’ direct investment in
shares, convertible bonds, convertible debentures and units of equity-oriented
mutual funds would be calculated at their cost price.
As regards Irrevocable Payment
Commitments (IPC) issued by custodian banks in favour of Stock Exchange, the
computation of Capital Market Exposure would be as follows:
i. The
maximum risk to the banks issuing IPCs would be reckoned at 50%, on the
assumption of downward price movement of the equities bought by FIIs/ Mutual
Funds on the two successive days from the trade date (T), of 20% each with an
additional margin of 10% for further downward movement.
ii. Accordingly
the potential risk on T+1 would be reckoned at 50% of the settlement amount and
this amount would be reckoned as CME at the end of T+1 if margin payment /
early pay in does not come in.
iii. In case
there is early pay in on T+1, there will be no Capital Market exposure.
iv.
In case margin is paid in cash on T+1,
the CME would be reckoned at 50% of settlement price minus the margin paid. In
case margin is paid on T+1 by way of permitted securities to
FIIs / Mutual Funds, the CME would be reckoned at 50% of settlement price minus
the margin paid plus haircut prescribed by the Exchange on the securities
tendered towards margin payment.
v. The IPC will be treated as a
financial guarantee with a Credit Conversion Factor (CCF) of 100. However,
capital will have to be maintained only on exposure which is reckoned as CME.
Thus capital is to be maintained on the amount taken for CME and the risk
weight would be 125% thereon. The measures prescribed for IPCs will be
applicable to all IPCs issued by custodian banks.
Intra-day Exposures
It has been decided that the Board of each bank
should evolve a policy for fixing intra-day limits and put in place an
appropriate system to monitor such limits, on an ongoing basis.
Enhancement in limits
Banks having sound internal controls and robust risk
management systems can approach the RBI for higher limits.
Prudential Limits on Intra-Group
Exposure
To contain concentration and
contagion risks arising out of ITEs, certain quantitative limits on financial
ITEs and prudential measures for the non-financial ITEs have been imposed as
under:
i
Exposure should include credit exposure and
investment exposure. However, exposure on account of equity and other
regulatory capital instruments should be excluded.
ii
Banks should adhere to the following
intra-group exposure limits :
a.
Single Group Entity Exposure ( on Paid-up Capital and Reserves)
i.
5% in case of non-financial companies
and unregulated financial services companies
ii.
10% in case of regulated financial
services companies
i.
10% in case of all non-financial
companies and unregulated financial services companies taken together
ii.
20% in case of the group.
iii. Intra-group
Exposures Exempted from the Prudential Limits
The following intra-group
exposures would be excluded from the stipulated limits :
a.
Banks' exposures to other banks /
financial institutions in the group in the form of equity and other capital
instruments are exempted from the stipulated limits, and the extant
instructions will continue to apply, subject to the prohibitions stipulated at
iv below.
b.
Inter-bank exposures among banks in the
group operating in India. However, prudential limits in respect of call /
notice money market for scheduled commercial banks would continue to be
governed by extant instructions on Call / Notice Money Market Operations.
c.
Letters of Comfort issued by parent bank
in favour of overseas group entities to meet regulatory requirements.
iv. Prohibited Exposures
Wherever a bank has been set-up
under a NOFHC ( non-operative financial holding company) structure,
a.
Bank cannot take any credit or
investments exposure on NOFHC, its Promoters / Promoter Group entities or
individuals associated with the Promoter Group.
b.
Bank cannot invest in the equity / debt
capital instruments of any financial entities under the NOFHC.
Financing
of equities and investments in shares
Advances against shares to individuals
Loans against security of shares,
convertible bonds, convertible debentures and units of equity oriented mutual
funds to individuals from the banking system should not exceed the limit
of Rs.10 lakh per individual if the securities are held in physical form and
Rs. 20 lakhs per individual if the securities are held in demat form. Such
finance should be reckoned as an exposure to capital market..
Financing of Initial Public Offerings
(IPOs)
Banks may grant advances to individuals for
subscribing to IPOs. Loans/advances to any individual from the banking
system against security of shares, convertible bonds, convertible debentures,
units of equity oriented mutual funds and PSU bonds should not exceed the limit
of Rs.10 lakh. Such finance should be reckoned as an exposure to capital
market.
Bank finance to assist employees to buy
shares of their own companies
Banks may finance to employees
for purchasing shares of their own companies under Employees Stock Option
Plan(ESOP) upto 90% of the purchase price or Rs.20 lakh, whichever is lower. Such
finance would be treated as an exposure to capital market. These instructions
will not be applicable for extending financial assistance by banks to their own
employees.
Banks should obtain a declaration
from the borrower indicating the details of facilities availed against specified
securities, from any other bank/s in order to ensure compliance with the prescribed
ceilings.
Follow-on Public Offers (FPOs) will also be
included under IPO.
Advances against shares to Stock
Brokers & Market Makers
Banks are free to provide credit facilities to
stockbrokers and market makers. However, in order to avoid any nexus between stock
broking entities and banks, the bank should fix, a sub-ceiling for total advances
to
i.
all the stockbrokers and market makers;
and
ii.
to any single stock broking entity,
including its associates/ inter-connected companies.
Further, banks should not extend credit facilities
directly or indirectly to stockbrokers for arbitrage operations in Stock
Exchanges.
Bank financing to individuals against
shares to joint holders or third party beneficiaries
While granting advances against shares held in joint
names to joint holders or third party beneficiaries, banks should ensure that advances
are not granted to other joint holders or third party beneficiaries.
Advances against units of mutual funds
While granting advances against units of mutual
funds, the banks should adhere to the following guidelines:
i)
The units should be listed in the stock
exchanges or repurchase facility should be available.
ii)
The units should have completed the
minimum stipulated lock-in-period.
iii)
The amount of advances should be linked
to the Net Asset Value (NAV) / repurchase price or the market value, whichever
is less.
iv)
Advances against units of mutual funds would
attract the quantum and margin requirements as applicable to advances against
shares and debentures. In case the security is exclusively debt-oriented mutual
funds, banks will be free to decide on their own quantum and margin
requirements.
v)
Advances should not be granted for
subscribing to another scheme of a mutual fund or for the purchase of shares/
debentures/ bonds etc.
These loans will also be subject to exposure norms
as well as the statutory limit on shareholding in companies.
Margin Trading
Banks may extend finance to
stockbrokers for margin trading. Each bank should formulate detailed
guidelines subject to the following parameters:
(i)
The finance should be within the overall
ceiling of prescribed 40% of net worth .
(ii)
A minimum margin of 50 per cent should
be maintained on the funds lent for margin trading.
(iii)
The shares purchased with margin trading
should be in dematerialised mode under pledge to the lending bank.
(iv)
The bank’s should to ensure that no
"nexus" develops between inter-connected stock broking entities/ stockbrokers
and the bank. It should be spread out among a reasonable number of entities.
The Audit Committee of the Board
should periodically monitor the bank’s exposure to margin trading and ensure
that the guidelines are complied with. Banks should disclose the total finance
extended for margin trading in the "Notes on Account" to their
Balance Sheet.
Cross holding of capital among banks /
financial institutions
(i) Banks' investment in the following instruments, issued
by other banks and eligible for capital status, should not exceed 10% of the
investing bank's capital funds (Tier I plus Tier II):
a.
Equity shares;
b.
Preference shares eligible for capital
status;
c.
Subordinated debt instruments;
d.
Hybrid debt capital instruments; and
e.
Any other instrument approved as in the
nature of capital.
(ii)
Banks should not acquire any fresh stake
in a bank's equity shares, if by such acquisition, the investing bank's holding
exceeds 5% of the investee bank's equity capital.
(iii)
It is clarified that a bank’s equity
holdings in another bank held under provisions of a Statute will be outside the
purview of the ceiling prescribed above.
Banks’ investments in the equity
capital of subsidiaries are at present deducted from their Tier I capital for
capital adequacy purposes. Investments in the instruments issued by banks which
are not deducted from Tier I capital of the investing bank, will attract 100%
risk weight for credit risk for capital adequacy purposes.
'Safety
Net' Schemes for Public Issues of Shares, Debentures, etc.
‘Safety Net' Schemes
Some banks/their subsidiaries provide buy-back
facilities under the name of ‘Safety Net’ Schemes under which, large exposures
are assumed by way of commitments to buy back the relative securities from the
original investors during a stipulated period at a pre-determined price,
irrespective of the prevailing market price. Banks/their subsidiaries have been
advised to refrain from offering such ‘Safety Net’ facilities by whatever name it
is called.
Provision
of buy back facilities
In some cases, the issuers provide
buy-back facilities to original investors up to Rs. 40,000/-in respect of
non-convertible debentures after a lock-in-period of one year. If, at the
request of the issuers, the banks or their subsidiaries provide additional
facilities to small investors subscribing to new issues, such buy-back
arrangements should not entail commitments to buy the securities at
pre-determined prices. Prices should be determined from time to time, keeping
in view the prevailing stock market prices for the securities. Commitments
should also be limited to a moderate proportion of the total issue and should
not exceed 25% of the owned funds of the banks/their subsidiaries. These
commitments will also be subject to the overall exposure limits.
Based on the
Master Circular of 1/7/15.
No comments:
Post a Comment