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The Reserve Bank of India on Tuesday unveiled draft guidelines prescribing quantitative limits for banks’ financial intra-group transaction and exposures (ITEs) and prudential measures for the non-financial ITEs.
The guidelines are to ensure that banks engage in the ITEs in a safe and sound manner in order to contain the concentration and contagion risk arising out of ITEs.
The RBI has pegged banks’ single group entity exposure at 5 per cent of paid-up capital and reserves in case of non-financial services companies and unregulated financial services companies.
The single group entity exposure has been set at 10 per cent of paid-up capital and reserves in case of regulated financial services companies.
The central bank has pegged banks’ aggregate group exposure at 10 per cent of the paid-up capital and reserves in case of all non-financial services companies and unregulated financial services companies taken together.
Further, the aggregate group exposure will be 20 per cent of the paid-up capital and reserves in the case of the Group i.e. all Group entities (financial and non-financial) taken together.
A 'Group' is defined as an arrangement involving two or more entities related to each other through relationships such as : subsidiary – parent; associate; joint venture; a related party; direct or indirect ownership of 20 per cent or more interest in the voting power of a enterprise; holding company of the bank.
A 'Group entity' is defined as any entity involved in the above arrangement.
If banks engage in marketing/distributing the financial products of the Group entities to their own customers, banks should ensure that there is no confusion to the customers about the respective roles and responsibilities of the bank and the product seller.
Further, the arrangement should not give any impression that the product is guaranteed or otherwise supported by the bank, unless a legally enforceable formal agreement is in place to this effect; and such products should not be bundled/clubbed with the bank’s own products in any way that compel the customers to buy the marketed product.
Banks should make disclosures such as top-20 intra-group exposure; total amount of intra-group exposure; percentage of intra-group exposure to total exposure of the bank on borrowers/customers in their notes to accounts.
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