Circulars/Notifications - Banking Surveillance Department  
 BSD Circular Letter No. 06 of 2010
April 09, 2010

The Presidents/Chief Executive Officers
All Banks/DFIs

Dear Sirs/Madam,

Reciprocal Investments - Collective Investment Schemes


Please refer to Section 1.1 of instructions on Minimum Capital Requirements (MCR) issued vide BSD circular No. 08 dated June 27, 2006. The instructions require deduction of such artificially designed reciprocal crossholdings of banks which inflate the capital position.

2. In this regard, following instructions shall be applicable on banks/DFIs’ investment in mutual funds of Asset Management Company (AMC) in which a bank/DFI has significant influence or control i.e. bank/DFI owns 20% or more equity interests in the AMC.

a) Investment in Closed Ended Funds: Where a bank/DFI owns less than 20% of the closed ended mutual funds being managed by above referred AMC and these mutual funds in turn also hold the Capital (Tier-1 & Tier-2) instruments issued by the bank/DFI; the lower of the following two will be deducted from the bank/DFI’s Tier-1capital for capital adequacy purpose.

i. Bank/DFI’s investment in such mutual funds, or
ii. The mutual funds’ investment in bank/DFI’s capital instruments
b) Investment in Open Ended Funds: Where a bank/DFI owns open ended mutual funds being managed by above referred AMC and these mutual funds in turn also hold the Capital (Tier-1 & Tier-2) instruments issued by the bank/DFI; the lower of the following two will be deducted from the bank/DFI’s Tier-1capital for capital adequacy purpose.
i. Bank/DFI’s investment in such mutual funds, or
ii. The mutual funds’ investment in bank/DFI’s capital instruments

These instructions shall be applicable w.e.f. April 30, 2010.
All other instructions on the subject shall however, remain unchanged.

Please acknowledge receipt.


Yours faithfully,



(LUBNA FAROOQ MALIK)
DIRECTOR

       
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