The Hindu Business Line : RBI revises norms on banks' exposure to VCFs

Banks would have to obtain prior approval of the RBI for making strategic investment in VCFs, i.e. investments equivalent to more than 10 per cent of the equity or unit capital of a VCF.

All exposures to VCFs (both registered and unregistered) will be deemed to be on par with equity and considered for compliance with the capital market exposure ceilings.

Companies

For investment in VCFs set up in the form of companies, the bank will not hold more than 30 per cent of the paid-up capital of the investee company or 30 per cent of its own paid-up share capital and reserves, whichever is lower.

Besides, investments in VCFs in the form of equity or units, the investment by a bank in a subsidiary company, financial services company, financial institution, stock and other exchanges should not exceed 10 per cent of the bank's paid-up capital and reserves and the total investments in all these together should not exceed 20 per cent of the bank's paid-up capital and reserves.

According to the guidelines, banks' investments in unquoted shares, bonds or units of VCFs will be classified under Held to Maturity (HTM) category for initial period of three years and will be valued at cost during this period. For the investments made before issuance of these guidelines, the classification would be done as per the existing norms.

Bonds

Investments in bonds of VCFs will have risk weightage of 150 per cent for measuring the credit risk during first three years when these are held under HTM category.

When the bonds are held under or transferred to AFS category, these would attract specific risk capital charge of 13.5 per cent.

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