The Chief Executives,
All Banks / DFIs

Dear Sirs / Madam,

PRUDENTIAL REGULATIONS

 Please refer to the Prudential Regulations issued vide BPD Circular No. 35 dated 28th October 2003.

 2. It has been decided to make amendments in the following Prudential Regulations for Corporate / Commercial Banking:

DEFINITIONS:

Equity of the Borrower (Para 9)
     So far, Revaluation Reserves were allowed to form part of the equity for the first three years only from the date of asset revaluation.  Now, it has been decided that if a borrower gets revaluation during the three years period, the borrower will be allowed the benefit from fresh revaluation, to the extent of increase in revaluation reserves, but restricting the benefit of such incremental value to 3 years only. Similarly, if after 3 years, the borrower again gets revaluation of the assets with resultant addition in their value, the benefit of such revaluation may also be allowed for the next 3 years, again to the extent of increase in revaluation reserves.

     The revaluation reserves to be eligible for benefit should be calculated by the valuers on the approved panel of the PBA. If the bank / DFI obtains Copy of Accounts as per requirement in Prudential Regulation R-3, then such revaluation reserves should appear in the said accounts, and in such case, no parallel calculation by the banks / DFIs for amortization purposes will be required. In case of no requirement of copy of accounts, the borrower may still be given the benefit of revaluation reserves in the way mentioned above, but the bank / DFI will calculate the amortization of the same independently.

Liquid Securities (Para 15)
Guarantees issued by domestic banks / DFIs when received as collaterals by banks / DFIs will be treated at par with Liquid Assets as defined in Prudential Regulations, whereas, for guarantees issued by foreign banks, the issuing banks’ rating, assigned either by Standard & Poors, Moody’s or Fitch-Ibca, should be “A” and above or equivalent.

REGULATION R-1 (PER PARTY LIMIT):
While calculating the group exposure, the group will cover both corporate entities as well as SMEs, in cases where such entities are owned by the same group.

 As Annexure-I (C) allows 85% weightage to financial guarantees accepted as collateral and issued by domestic and foreign banks, it has now been decided to give similar weightage to guarantees issued by the IFC (International Finance Corporation) , CDC (Commonwealth Development Corporation) DEG (Deutsche Investions and ntwicklungsgesellschaft nbH), FMO (Netherland Financierings Maatschappijvoor Ontwikklelingslanden N.V) and ADB (Asian Development Bank).

REGULATION R-6 1 A (d):
 Para 1A(d) of R-6 may be substituted as under:
 “No bank / DFI will take exposure on any person against the shares / TFCs of any of his group company.”

 3. The following clarification may also be noted regarding R-3 on Minimum Conditions for Taking Exposure:
 “The requirement of copy of accounts may be waived by the banks / DFIs when exposure net of liquid assets does not exceed the  limit of Rs 10 million.”

 4.Please acknowledge receipt.