What changed
RBI inserted new definitions for Acquisition Finance, Bridge Finance, Capital Market Intermediaries, Collateral, Non-debt Mutual Funds, and Primary Security, and deleted paragraph 4(8) of the original Directions. The Board's policy requirement under sub-subparagraph 6(1)(v) was substituted to specifically cover intra-day exposure limits to capital markets. A new paragraph 95A was inserted defining CME to include direct and indirect exposures such as investments in non-debt mutual funds, REITs, InvITs, AIFs, credit to CMIs, acquisition finance, and financing to non-debt mutual funds, with a proviso for intraday limits to non-debt mutual funds.
What it means for you
Banks must now include a broader set of exposures under capital market exposure limits, subject to new prudential ceilings (40% of eligible capital base for aggregate CME, 20% for direct CME, 20% for acquisition finance). The alignment with Credit Facilities Directions ensures consistency but may require recalibration of risk management systems. The new intraday limit proviso for non-debt mutual funds offers some relief for specific guaranteed receivables.
What you must do
- Update internal policies to include the new definitions and expanded CME components.
- Review and adjust intra-day exposure limits for capital markets as per revised Board policy requirements.
- Ensure compliance with the new prudential ceilings for aggregate CME, direct CME, and acquisition finance.
- Ensure compliance with the proviso for intraday limits to non-debt mutual funds based on guaranteed receivables.
Who it affects
All commercial banks in India, Risk management departments, Board of directors and senior management, Credit and investment teams handling capital market exposures
What is the key change in the definition of capital market exposures?
The amended directions now explicitly include investments in non-debt mutual fund schemes, REITs, InvITs, AIFs, credit facilities to CMIs, acquisition finance, and financing to non-debt mutual funds as part of CME.
How does the new proviso on intraday limits to non-debt mutual funds affect banks?
Banks can extend intraday limits to non-debt mutual funds only to the extent of guaranteed receivables due on the same day from specific sources like maturity proceeds of government securities, T-Bills, SDLs, or TREPS from CCIL, providing a limited exemption.
Do these amendments require board approval?
Yes, the Board must now specifically approve a policy for fixing intra-day exposure limits to capital markets within prudential limits, as per the substituted sub-paragraph 6(1)(v).