The
Presidents/ Chief Executives
All Banks/DFIs
Dear
Sirs/Madam,
INVESTMENT
IN SUB-ORDINATED/UNSECURED
TFCs BY BANKS/DFIs
Please
refer to BSD Circular No.5 dated the 25th March, 2003 on
Minimum Capital Requirements, and Regulation R-4 of Prudential
Regulations for Corporate and Commercial Banking relating
to limit on exposure against unsecured financing facilities.
2)
Notwithstanding the limit of Rs.500,000 for unsecured financing
facility to one person prescribed under Prudential Regulation
R-4 of Corporate and Commercial Banking, it has been decided
to allow banks/DFIs to invest in subordinated/unsecured
TFCs issued by other banks/DFIs to raise Tier-II Capital
(hereinafter called “such TFCs”) in accordance
with the rules contained in BSD Circular No.5 dated 25th
March, 2003 regarding Minimum Capital Requirement, and subject
to the following restrictions:
i)
The banks/DFIs’ investments in such TFCs will be assigned
a risk weight of 100% and will not be deducted from Tier-I
capital for the purpose of calculating the Capital Adequacy
Ratio, provided the Banks/DFIs’ investment in such
TFCs will not exceed 10% of their equity (in the case of
DFIs not mobilizing deposits/ COIs from general public the
investment in such TFCs will not exceed 25% of their equity).
ii)
The investments of the banks/DFIs in such TFCs in excess
of the limits prescribed at Para 2(i) above will be assigned
a risk weight of 0% for Capital Adequacy Purpose and will
be deducted from Tier-I Capital of the investing bank/DFI.
iii)
A bank/DFI’s investment in a single issue of such
TFCs of any other bank/DFI will not at any time exceed 5%
of its own equity or 15% of the total size of the issue,
whichever is less.
3)
The banks/DFIs’ investments in such TFCs will not
be counted towards the aggregate limit on unsecured financing
facilities prescribed under Prudential Regulation R-4 of
Corporate and Commercial Banking .
4)
All other instructions on the subject will remain unchanged.