RBI Imposes Restrictions On Intra-Group Investment By Banks
Mumbai: The Reserve Bank today imposed curbs on banks investing in their group companies in a bid to mitigate the financial risk from concentration of business.
The measures are aimed at ensuring that banks maintain arm's length relationship in dealings with their own group entities, meet minimum requirements with respect to group risk management and group-wide oversight, and adhere to prudential limits on intra-group exposures, the RBI said.
The RBI's guidelines on management of intra-group transactions and exposures, which contain quantitative limits, are meant exclusively for dealings with entities belonging to the bank's own group.
Banks are allowed to invest 5 per cent of their paid-up capital in the case of non-financial companies and unregulated financial services companies. The limit is 10 per cent for regulated financial services companies.
It also fixed an aggregate group exposure limit for intra-group transactions at 20 per cent for all financial and non-financial entities taken together and 10 per cent for non-financial and unregulated entities.
The guidelines will become effective from October 1. Presently, there are exposure norms for single and group borrowers. The objective is to limit the maximum loss in the event of a default of counterparty to the extent that it does not endanger the bank's solvency.
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