What changed
RBI has prescribed guidelines on Intra-Group Transactions and Exposures (ITEs) for banks, including quantitative limits on financial ITEs and prudential measures for non-financial ITEs. Previously, no such limits existed. Banks must submit data on intra-group exposures from the quarter ending December 31, 2014, and bring any excess exposure within limits by March 31, 2016, or face deduction from Common Equity Tier 1 capital.
What it means for you
Banks must now monitor and cap their exposures to group entities, reducing risk concentration and potential contagion. Non-compliance after March 31, 2016, will directly hit capital adequacy by deducting excess exposure from CET1 capital. This aligns Indian banking with global best practices from the Basel Committee.
What you must do
- Review current intra-group exposures against the new limits and plan reduction if needed by March 31, 2016.
- Set up systems to report intra-group exposure data to RBI's Department of Banking Supervision from Q4 2014.
- Ensure all intra-group transactions maintain arm's length pricing and are documented properly.
- Update group risk management policies to include oversight of ITEs.
Who it affects
All scheduled commercial banks (excluding RRBs and LABs), Bank treasury and risk management teams, Group entities of banks
What are the effective dates for these guidelines?
The guidelines take effect from October 1, 2014. Banks must submit data from the quarter ending December 31, 2014, and comply with exposure limits by March 31, 2016.
What happens if a bank's intra-group exposure exceeds the limits after March 31, 2016?
Any exposure beyond the permissible limits after that date will be deducted from the bank's Common Equity Tier 1 capital.
Do these guidelines apply to all banks?
They apply to all scheduled commercial banks, excluding Regional Rural Banks (RRBs) and Local Area Banks (LABs).