RBI Caps Intra-Group Exposures for Banks

RBI/2013-14/487 DBOD.No.BP.BC.96/21.06.102/2013-14 February 11, 2014 The Chairman and Managing Directors/ Chief Executive Officers of All Scheduled Commercial Banks (excluding RRBs and LABs) Madam / Sir, Guidelines on Management of Intra-Group Transactions and Exposures As a prudential measure aimed at better risk management and avoiding concentration of credit risk, the Reserve Bank of India (RBI) has prescribed prudential limits on banks’ exposure to single and group borrowers. Banks are required to comply with these limits both at solo and consolidated level. However, RBI has not placed limits on intra-group exposure. It has now been decided to prescribe guidelines (in the Annex ) on Intra-Group Transactions and Exposures (ITEs) for banks based on, among others, comments received on draft guidelines issued on August 14, 2012. The guidelines are exclusively meant for banks’ transactions and exposures to the entities belonging to the bank’s own group (group entities). The guidelines contain quantitative limits on financial ITEs and prudential measures for the non-financial ITEs to ensure that banks engage in ITEs in safe and sound manner in order to contain concentration and contagion risks arising out of ITEs. These measures are aimed at ensuring that banks, at all times, 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. 2. These guidelines will become effective from October 1, 2014. Banks should accordingly submit data on intra-group exposures to the RBI (Department of Banking Supervision, Central Office), from the quarter ending December 31, 2014. In case, a bank’s current intra-group exposure is more than the limits stipulated in the guidelines, it should bring down the exposure within the limits at the earliest but not later than March 31, 2016. The exposure beyond permissible limits subsequent to March 31, 2016, if any, would be deducted from Common Equity Tier 1 capital of the bank. 3. The guidelines may be reviewed by the Reserve Bank as and when the guidance on ITEs is issued by the Basel Committee on Banking Supervision. Yours faithfully, (Chandan Sinha) Principal Chief General Manager

Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2013-14/487 · issued 11 Feb 2014. The plain-English explanation above is BankPulse’s own independent summary.

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