Rbi caps bank investments in private equity sector by 10%

RBI caps bank investments in private equity sector at 10% Altsmart

• On Sep 25, 2017, Monday, The RBI announced that it has barred banks from making investments in category III alternative investment funds (AIFs) or private equity firms in India.

• Moreover, RBI has listed out clear norms that specify banks’ participation in commodity derivatives clearing.

• It has tweaked the rules on investing in financial services firms.

• As per the current announcement, banks can now invest only as much as 10% in the paid-up capital/unit capital in category I and II funds. • Moreover, they cannot invest in category III funds. Thu far, RBI had not made any such rules for investing in AIFs.

• The RBI bank has also specified that banks wishing to undertake commodities derivatives clearing will have to set up a separate subsidiary. • Moreover, they will need to adhere to the membership criteria of stock exchanges and the regulations specified

by SEBI.

• RBI has recommended banks to setup internal risk control measures.

• Further, it has asked banks to take board approvals for deciding to what extent they can fulfil pay-in obligations that arise out of trades that their clients would execute.

• RBI has asked banks to set prudential norms on risk exposure.

• Furthermore, banks have been further notified by the RBI about changes to capital requirements in case they are envisaging investing in financial services firms.

• According to the fresh RBI guidelines, banks that will be making investments in such firms must have a minimum regulatory capital.

• In this case, the capital computation will include the capital conservation buffer (CCB). This was in addition to the move that the RBI had taken earlier with regards to mandating at least 10% capital adequacy ratio.

• However, at that point in time, the RBI did not mention CCB, which it has addressed in its Sep 25 announcement.

Contact Details • To know more about investments in private equity sector, please write to us on www.altsmart.in • https://twitter.com/alt_smart • https://www.facebook.com/AltSmartaif/?ref=nf • https://www.linkedin.com/company/7797279/