What changed
Previously, prudential limits on call/notice money market exposure were linked to a bank's owned funds. Effective from the fortnight beginning April 30, 2005, the benchmark is now linked to capital funds, which is the sum of Tier I and Tier II capital as per the latest audited balance sheet.
What it means for you
Banks will now use a broader capital base (including Tier II) to calculate their exposure limits, potentially allowing higher absolute limits if capital funds exceed owned funds. This aligns the prudential framework with international norms and strengthens risk management. Lending and borrowing caps in the call/notice market remain unchanged, so the shift only affects the calculation basis.
What you must do
- Update internal systems to compute prudential limits using capital funds (Tier I + Tier II) instead of owned funds.
- Ensure the latest audited balance sheet is used for capital funds calculation.
- Communicate the change to treasury and risk management teams for compliance from April 30, 2005.
- Review current call/notice money market exposures to ensure they remain within the new limits.
Who it affects
All scheduled commercial banks (excluding RRBs), Treasury departments, Risk management teams
What is the effective date for this change?
The new benchmark applies from the fortnight beginning April 30, 2005.
Does this change affect the actual lending or borrowing limits?
No, the prudential limits for lending and borrowing in the call/notice money market remain unchanged. Only the benchmark for calculating those limits has changed.
What are capital funds as per this circular?
Capital funds are defined as the sum of Tier I and Tier II capital, as per the latest audited balance sheet.