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Toms TC No. 36
Reserve Bank of India has circulated a master circular detailing broad as well as specific guidelines for banks and financial institutions on their credit exposure limits for single/group borrower and capital markets. For this purpose credit exposure (both funded and non-funded) and investment exposure are within the scope. The banks should use current exposure method to compute their credit exposures arising out of interest rate and FX transaction and gold. Bilateral netting of Mark-To-Market (MTM) values arising on account of such derivative contracts cannot be permitted. Accordingly, banks should count their gross positive MTM value of such contracts for the purposes of capital adequacy as well as for exposure norms.
Toms TC No. 36
Authority. SEZs are considered as commercial real estate sector so that they are given appropriate risk weights. Banks must ensure that credit so extended must not be used for speculation in real estate. Where banks undertake leasing, hire-purchasing, factoring services departmentally, they should maintain a balanced portfolio vis--vis the aggregate credit. Their exposure to each of these activities should not exceed 10% of total advances. Exposure to Indian JVs and wholly owned subsidiaries (WOS) overseas is limited to 20% of banks unimpaired capital funds, but subjected to conditions, such as 51% holding, compliance with Sec 25 of BR act. The resource base for such lending should be funds held in foreign currency accounts. Maturity mismatches arising out of such transactions should be within the overall gap limits approved by RBI. Commercial viability and not the reputation of promoters must be given weightage; similar is the case with non-fund based funding. The government of WOS should have no restrictions related to obtaining foreign currency loans or for repatriation and should permit non-resident banks to have legal charge on securities/assets abroad and the right of disposal in case of need. Under the refinance scheme of EXIM Bank, the banks may sanction term loans on merits to eligible Indian promoters for acquisition of equity in overseas JVs/WOS, provided that the term loans have been approved by the EXIM Bank for refinance. Banks exposure to capital markets must include both direct and indirect exposures. Direct exposures would include investment in shares, convertible bonds and debentures, units of equity oriented MFs, secured and unsecured advances/guarantees to stockbrokers, financing stockbrokers for margin trading, exposures to VC funds. Indirect exposures would include advances against shares and other such securities which are taken as primary security, loans sanctioned to corporates on clean basis for meeting promoters contribution to the equity of new companies in anticipation of raising resources, bridge loans to companies against expected equity flows/issues, underwriting commitments taken up by the banks for IPOs. Banks issue Irrevocable Payment Commitments (IPCs) in favor of stock exchanges on behalf of domestic MFs/FIIs to facilitate the transactions done by these clients. Only those custodian banks would be permitted to issue IPCs who have a clause in the agreement with their clients which gives them an inalienable right over the securities to be received as payout in any settlement, except for cases where transactions are pre-funded and in case of FX deals the nostro account has been credited before the issuance of IPC by custodian banks. The maximum risk is decided upon as a percentage based on the no. of days after trade. The IPC will be treated as a financial guarantee with a Credit Conversion Factor (CCF) of 100. BR Act specifies 30% of paid up capital as upper limit of shareholding by banks in corporates as pledgee, mortgagee or absolute owner. This also includes shared held in demat form. The aggregate exposure of a bank (both solo and consolidated basis) to the capital markets in all forms (both fund based and nonfund based) should not exceed 40% of its net worth, and within this <=20% for investment in shares, convertible bonds / debentures, units of equity-oriented mutual funds and all exposures to Venture Capital Funds (VCFs) (both registered and unregistered). Certain items are excluded from capital market exposure such as banks investment in RRBs, own subsidiaries, CDSL etc., CDs of other banks, shares acquired by CDR mechanism. Banks direct investment should be calculated at their cost price. For computing the exposure to the capital markets, loans/advances sanctioned and guarantees issued for capital market operations would be reckoned with reference to sanctioned limits or outstanding, whichever is higher. Banks are free to decide on their intra-day exposures to capital markets.
Toms TC No. 36
Toms TC No. 36
Unsecured exposure is defined as an exposure where the realizable value of the security, as assessed by the bank/approved valuers/Reserve Banks inspecting officers, is not more than 10%, ab-initio, of the outstanding exposure. Exposure shall include all funded and non-funded exposures (including underwriting and similar commitments. Banks have to limit their commitment by way of unsecured guarantees in such a manner that 20% of the banks outstanding unsecured guarantees plus the total of outstanding unsecured advances do not exceed 15% of total outstanding advances. 'Safety Net' Schemes for Public Issues of Shares, Debentures, etc.
Banks and their subsidiaries were found to provide buy-back facilities suo motto, and apparently there was no undertaking in such cases from the issuers to buy the securities. They were advised not to take such exposures. If, at the request of the issuers, the banks or their subsidiaries find it necessary to 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 in terms of the amount and should not exceed 20% of the owned funds of the banks/their subsidiaries