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September 25, 2017

RBI has amended its Master Direction (or guidelines) on financial services provided by banks, which it originally issued in May 2016. The provisions of these Directions shall apply to every Scheduled Commercial Bank (excluding a Regional Rural Bank or RRB), licensed to operate in India by RBI. Unless otherwise specified, these directions shall not be applicable to overseas branches and subsidiaries of these banks.

RBI decided to make certain amendments after considering the suggestions and queries received from SEBI, banks, and other stakeholders. The amendment states, among others, that no bank shall:

  • Hold more than 10% in the equity of a deposit-taking non-banking finance company or NBFC, provided that this does not apply to a housing finance company
  • Make an investment of more than 10% of the unit capital of a Real Estate Investment Trust/Infrastructure Investment Trust subject to overall ceiling of 20% of its net worth permitted for direct investments in shares, convertible bonds/debentures, units of equity-oriented mutual funds and exposures to Alternative Investment Funds (AIFs)
  • Hold along with its subsidiaries, associates or joint ventures or entities directly or indirectly controlled by the bank; and mutual funds managed by Asset Management Companies controlled by the bank, more than 20% of the investee company’s paid up share capital engaged in non-financial services
  • Make any investment in a Category III AIF. Investment by a bank’s subsidiary in a Category III AIF shall be restricted to the regulatory minima prescribed by SEBI

Furthermore, the amendment states that banks shall ascertain the risks arising on account of equity investments in Alternative Investment Funds done directly or through their subsidiaries, within the Internal Capital Adequacy Assessment Process (ICAAP) framework and determine the additional capital required, which will be subject to supervisory examination as part of Supervisory Review and Evaluation Process. This shall also be applicable to sponsoring of Infrastructure Debt Funds by banks. Additionally, Section 14(a)(ii) is being amended to read as under: “It [bank] has the minimum prescribed capital (including Capital Conservation Buffer) after investment.” 

 

Keywords: Asia Pacific, India, Banking, NBFC, AIF, ICAAP, RBI

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