RBI revises funding norms in subsidiaries

Written by Banking Bureau | Mumbai, May 30 | Updated: Jun 1 2008, 02:34am hrs
The norms governing the treatment of banks investment in their subsidiaries and associates, and the investments by the banks subsidiaries and associates in their parent banks, have been reviewed by the Reserve Bank of India.

RBI has decided to revise the norms on Friday, both under the Basel-I and Basel-II Frameworks. The investments of a bank in the equity as well as non-equity capital instruments issued by a subsidiary, which are reckoned towards its regulatory capital as per norms prescribed by the respective regulator, should be deducted at 50 % each, from Tier I and Tier II capital of the parent bank, while assessing the capital adequacy of the bank on solo basis , under the Basel-I Framework .

Under the extant instructions under Basel I environment, only the equity investments of a bank only in its subsidiaries are required to be deducted, only from Tier I capital of the bank and no such deduction is required for a banks investment in associates. The investments made by a banking subsidiary in the equity or non equity regulatory-capital instruments issued by its parent bank, should be deducted from such subsidiarys regulatory capital at 50 % each from Tier I and Tier II capital, in its capital adequacy assessment on a solo basis, under Basel I and Basel II Frameworks .In addition, under the Basel II Framework, the same treatment would be applied to the investment by a banking associate also, in its parent bank. The treatment of investment by the non-banking financial subsidiaries associates in the parent banks regulatory capital would, however, be governed by the applicable regulatory capital norms of the respective regulators of such subsidiaries/associates. An associate would be defined as an entity in which the parent bank has an equity stake exceeding 30 % but less than 50 % of the paid up capital of the investee entity.