What changed
RBI amended paragraph 1.16(ii) of Annex 4 to the Basel III Master Circular dated July 1, 2015. The 'eligible amount' for issuing PDIs in foreign currency or rupee bonds overseas is now defined as the higher of 1.5% of Risk Weighted Assets (RWAs) or total Additional Tier 1 capital as on March 31 of the previous financial year. The cap on overseas issuance remains at 49% of this eligible amount.
What it means for you
Banks now have a clear formula to calculate the maximum AT1 capital they can raise overseas. This removes ambiguity and ensures that banks with higher AT1 capital can raise more foreign currency or rupee-denominated bonds abroad. The 49% sub-limit remains, so banks must plan their overseas issuance within this cap.
What you must do
- Recalculate your eligible amount for overseas AT1 issuance using the higher of 1.5% of RWAs or total AT1 capital as of March 31 of the previous year.
- Ensure that foreign currency and rupee-denominated bond issuances do not exceed 49% of this eligible amount.
- Review your current AT1 capital structure to align with the revised limit and plan future issuances accordingly.
- Comply with all applicable prudential norms and FEMA guidelines for overseas issuances.
Who it affects
All Scheduled Commercial Banks (excluding RRBs), Treasury and capital management teams, Compliance and risk management departments
What is the 'eligible amount' for issuing AT1 bonds overseas?
The eligible amount is the higher of 1.5% of your bank's Risk Weighted Assets (RWAs) or the total Additional Tier 1 capital as on March 31 of the previous financial year.
Can we issue more than 49% of our eligible amount in foreign currency bonds?
No. The circular clearly states that not more than 49% of the eligible amount can be issued in foreign currency and/or rupee-denominated bonds overseas.
Does this apply to foreign bank branches in India?
The 49% cap on foreign currency issuance does not apply to foreign banks' branches, as noted in the annex. However, other terms remain applicable.