The central bank also said it would now impose a cap on ICDs at 50 per cent of PDs NoFs. The central bank further qualified this by stating that it is expected that actual dependence on ICDs would be much below this ceiling. The RBI notification forms part of a communique to PDs exhorting them to adopt a market-related approach with regard to a timely review of exposures and limits.
RBI said that ICDs accepted by PDs should be for a minimum period of one week and ICDs accepted from parent/promoter/group companies or any other related party should be on arms length basis and disclosed in financial statements as related party transactions.
Funds raised through ICDs would be subject to ALM discipline. The PDs are prohibited from placing ICDs with other counter parties. The guidelines will come into effect immediately. RBI also asked PDs to confirm that such a policy is in place and is monitored in an integrated manner to cover all exposures to the same counterparty. Earlier, RBI advised the PDs to establish sound internal control system and risk management system to take care of the various risks inherent in the business. It is presumed that as part of the credit risk management system, with the approval of their board of directors, PDs have in place appropriate exposure limits, for each of their counter parties which cover all dealings with such counter parties including money market, repos and outright securities transactions. u
These limits were reviewed periodically on the basis of financial statements, market reports, ratings etc and exposures taken only on a fully collateralized basis where there is slippage in the rating/assessment of any counterparty.
In the context of PDs sourcing their funds through ICDs and deploying in non-SLR bonds, RBI felt that guidelines on account of the liquidity and credit risk associated with such transactions. PDs are exposed to funding-liquidity risk arising from any inability to roll-over such deposits as also market-liquidity risk arising from the relative illiquidity of the non-SLR bond portfolios. RBI said that ICDs should be raised sparingly and not used as a continuous source of funds.
... relaxes NPA norms