The Hindu Business Line : Risk weightage on VF investments up

The Reserve Bank of India, in its Credit Policy on Tuesday, said that the investments by banks in venture funds would be considered as exposure to capital markets and asked the banks to give more risk weightage to such investments.

Announcing the policy measures, RBI Governor Mr Y.V. Reddy said that such investments need to be given risk weightage of 150 per cent as "the absence of adequate public disclosures with regard to performance/asset quality of venture capital funds would demand treatment of exposures to them as high-risk."

While significance of venture capital activities and need for banks' involvement in financing venture capital funds is well recognised, there is also a need to address the relatively higher risks inherent in such exposures, the RBI said.

"Obviously, the RBI wants to align venture capital investments with the capital market exposure. This makes banks' investment in venture capital funds less attractive," said Mr Luis Miranda, President and CEO of IDFC Private Equity, which manages over Rs 2,700 crore through two private equity funds in the country.

SBI, Bank of Baroda, Union Bank, LIC, and Canara Bank are among the banks that have invested in the IDFC private equity infrastructure funds.

Mr Sandesh Kirkire, CEO of Kotak Mutual Fund, said that the RBI was going cautious, after seeing the growing asset prices including that of real estate and in the capital markets.

"The RBI also wants to take away the liquidity for now and see how it works out, before announcing further steps."

Analysts expect banks to offload a part of their exposure in equities, if the investments in venture funds come under the overall ceiling for venture funds.

"There is no clarity on this as of now," said an analyst with a local broking outfit.

The RBI also said that operational guidelines in banks' exposure in venture funds would be issued separately.

More Stories on : Credit Policy | Venture Capital

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