What changed
RBI updated the 2011 IPC circular to reflect the shift from T+2 to T+1 rolling settlement for equities. Custodian banks must now have a client agreement clause giving them inalienable rights over securities to be received, unless the transaction is pre-funded. The maximum intraday capital market exposure (CME) for IPCs is set at 30% of the settlement amount, based on a 20% price drop assumption plus 10% additional margin. Any exposure outstanding after T+1 IST requires capital maintenance under Basel III norms.
What it means for you
Banks issuing IPCs face tighter risk management requirements under T+1 settlement, with a clear 30% intraday CME cap and mandatory client agreement clauses for non-pre-funded deals. This reduces settlement risk but increases operational burden for custodian banks. The intraday exposure must also comply with Large Exposure Framework limits, impacting capital planning for banks with significant capital market operations.
What you must do
- Review and update client agreements to include an inalienable right clause over securities for IPC issuance, unless transactions are pre-funded.
- Calculate intraday CME at 30% of settlement amount for IPCs, reducing exposure by cash margin or margin securities after haircut.
- Monitor IPC exposures to ensure they do not exceed Large Exposure Framework limits and maintain capital for any exposure outstanding beyond T+1 IST.
- Train operations and risk teams on the new T+1 settlement cycle requirements for IPCs.
Who it affects
Custodian banks issuing IPCs, Scheduled Commercial Banks (excluding RRBs), Capital market operations teams, Risk management departments
What is the new intraday CME cap for IPCs under T+1 settlement?
The maximum intraday capital market exposure for custodian banks issuing IPCs is 30% of the settlement amount, based on a 20% price drop assumption plus 10% additional margin.
When do these IPC guidelines take effect?
The instructions came into force with immediate effect from May 3, 2024, the date of the circular.
What happens if IPC exposure remains outstanding after T+1 IST?
If any exposure remains outstanding at the end of T+1 Indian Standard Time, banks must maintain capital on that exposure as per the Basel III Capital Regulations.