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Wednesday, Jun 23, 2004

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Investment norms for RNBCs tightened

Our Bureau

Mumbai , June 22

IN an attempt to offer greater safety and liquidity to depositors' money, the Reserve Bank of India (RBI) has tightened the investment norms for residuary non-banking companies (RNBCs).

The directed investments of RNBCs will be increased from 80 per cent to 90 per cent on and from April 1, 2005 and to 100 per cent on and from April 1, 2006. Accordingly, discretionary investments (presently lower of 20 per cent of the deposits or 10 times the net-owned funds) would be restricted to 10 per cent of the deposits or equal to net-owned funds on and from April 1, 2005 and there would be no such discretion on and from April 1, 2006.

At present, RNBCs are required to invest 80 per cent of the aggregate liabilities to depositors in the manner directed by the RBI.

The new norms on directed investments will be effective from July 1, 2004, while the reduction in discretionary investment will begin from April 1, 2005. The existing investments may continue to be held till their sale/ maturity but are not permitted to be renewed/ rolled over, said the central bank in a press release.

Investments in fixed deposits/certificates of deposit (CDs) of scheduled commercial banks (SCBs) would continue as hitherto at not less than 10 per cent of deposits.

However, only the CDs of financial institutions (FIs) specified in the schedule to the RBI would be eligible for investment under this category provided these CDs are rated not less than `AA+', said the release.

The companies will be required to invest an additional 15 per cent of the deposits in securities issued by Central and State governments as part of their market borrowing programmes.

The bonds and debentures in which the investments can be made will require rating of not less than `AA+' and listing on one of the stock exchanges.

The investment in units of mutual funds would now be restricted only to debt-oriented schemes with a sub limit of not more than 2 per cent in any one mutual fund.

The exposure to a single SCB would be restricted to one per cent of the aggregate deposit liabilities of the SCB as on March 31 of the previous accounting year and to a single specified FI to not more than one per cent of the deposits of RNBC.

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