New norms for banks' market exposure next month

MUMBAI, APRIL 23. The Reserve Bank of India today said the ceiling of 5 per cent prescribed in the November 2000 norms would henceforth apply to total exposure of a bank to stock markets in all forms as per the proposed guidelines.

The ceiling would cover direct investment by banks in equity shares, convertible debentures (CDs), and units of equity oriented mutual funds, advances against shares and debentures and guarantees issued on behalf of brokers, the apex bank said in its proposed amendments in the guidelines in the light of the recommendations of the RBI-Securities and Exchange Board of India technical committee.

The 5 per cent ceiling would be computed in relation to total advances, including commercial paper (CP) as on March 31 of the previous year as against the total outstanding domestic credit as on March 31 of the previous year under the earlier guidelines, it said seeking comments from bankers and experts.

Further, for computing the 5 per cent norm, direct investment in shares by banks would be calculated at the price paid by banks at the time of acquisition of shares, it said.

The RBI, in relation to over exposure of few banks (above the overall ceiling of 5 per cent), has proposed transitional provisions. These banks should formulate time-bound plan for gradually reducing their exposure to stock markets in line with the amended guidelines. This plan should be submitted to the apex bank by May 31, it said.

- PTI

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Section  : Business
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