Bank Group Cap Mart Exposure Likely To Be Capped At 2% Of Assets

The draft guidelines for consolidated accounting, which will come into force from next fiscal year have suggested that a bank group's aggregate exposure to capital markets should not exceed 2 per cent of their total assets as on March 31 of the previous year.

This ceiling will apply to exposure in all forms, including both fund based and non-fund based, to capital market. Within the total limit, investment in shares, convertible bonds and debentures and units of equity-oriented mutual funds should not exceed 10 percent of group's net worth.

While computing assets, intangible assets and accumulated losses will be excluded, the draft guidelines released by RBI said.

All banks -- listed and unlisted -- are required to prepare and disclose consolidated financial (CFS) from the financial year commencing from April 1, 2002. A parent presenting CFS will consolidate all subsidiaries - domestic as well as foreign.

In addition to the CFS, banks coming under the purview of consolidated supervision of RBI will be required to prepare consolidated prudential reports (CPR) which will be initially introduced on half-yearly basis from September 30, 2002, as part of off-site reporting system.

Exposure by the bank group to a single borrower will not exceed 10 per cent of the capital funds of the group and exposure by the bank group to a borrower group should not exceed 30 per cent of the capital funds of the group.

The aggregate exposure on a borrower group can exceed the exposure norm of 30 per cent by an additional 10 per cent (up to 40 per cent) provided the additional exposure is for the purpose of financing infrastructure projects, the RBI said.

The existing liquidity requirements applicable to banks on a solo basis are extended to the consolidated position of the group. If the group is homogenous, liquidity compliance -- CRR and SLR -- should be ensured on a consolidated basis after netting out intra-group transactions and exposures.

If the group is heterogeneous comprising non-banking and non-financial entities, compliance with the CRR/ SLR norms would be restricted to the banking entities on a consolidated basis. In respect of deposit taking NBFCs within bank groups they should comply with the SLR requirement prescribed at solo level.

Initially, consolidated supervision would be mandated for all groups where the controlling entity is an institution which comes under the regulatory purview of the RBI. Accordingly, the guidelines would be applicable to all banks in banking groups and banks promoted and "controlled" by banks or financial institutions or non-banking financial companies.

In due course, banks and non-banking financial companies in mixed conglomerates would be brought under consolidated supervision where the parents may be non-financial entities or the parents may be financial entities falling under the jurisdiction of other regulators like IRDA or Sebi.