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RBI proposes to tighten banks' exposure norms to group companies

RBI has proposed that a bank's exposure to its own group entities should not exceed 20% of the paid-up capital and reserves

 
Mumbai: Aiming to avoid concentration of credit risk, the Reserve Bank of India (RBI) has proposed that a bank's exposure to its own group entities should not exceed 20% of the paid-up capital and reserves, reports PTI.
 
In case of all non-financial services companies and unregulated financial services companies taken together, the exposure should not exceed 10% of the paid-up capital and reserves, the RBI's draft guidelines on 'Management of Intra-Group Transactions and Exposures' (ITEs) said.
 
The draft guidelines contain both quantitative limits for the financial ITEs and prudential measures for the non-financial ITEs to ensure that the banks engage in the ITEs in safe and sound manner in order to contain the concentration and contagion risk arising out of ITEs.
 
"These measures are aimed at ensuring that banks, at all times, maintain arms length relationship in their dealings with the Group entities, meet minimum requirements with respect to Group risk management and group-wide oversight, and adhere to prudential limits on intra-group exposures," the draft said.
 
The central bank has sought comments on the draft guidelines by 14th September.
 
The RBI said that if the exposures exceed the stipulated limits, the same should be reported without delay, with an acceptable rationale of the cause of the breach to its Department of Banking Supervision.
 
It said the possibility that large losses could arise due to ITEs and threaten the ongoing business operations of a Banking Group motivates supervisory concern that risk concentrations within the Group be identified, monitored and subject to an adequate management strategy.
 
The apex bank said the draft has been prepared in the light of experience gained in monitoring of identified financial conglomerates during last few years.
 
This guideline have been proposed for all scheduled commercial banks, including foreign banks operating in India, belonging to a financial Group.
 

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RBI asks banks to keep interest rates variations on FDs to minimum

RBI said that banks should put in place a Board approved transparent policy on pricing of liabilities


Mumbai: The Reserve Bank of India (RBI) has asked banks to ensure the variation in interest rates on single-term deposits of Rs15 lakh and above and other deposits is minimal for corresponding maturities, reports PTI.
 
Stating that there was wide variations in the interest rates on single term deposits of corresponding maturities, RBI said in a notification that banks should put in place a Board approved transparent policy on pricing of liabilities.
 
It said that such practice of banks suggested "inadequate liquidity management system" and "inadequate pricing methodologies".
 
Banks are allowed to offer differential rates of interest on term deposits at their own discretion, on condition that they should disclose to the depositor in advance the schedule of interest rates payable on deposits, including deposits on which differential interest is paid.
 
"The Board/ALCO should ensure that the variation in interest rates on single term deposits of Rs15 lakh and above and other term deposits (i.e. deposits less than Rs15 lakh) is minimal for corresponding maturities," RBI said.

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