RBI to soon release framework for large exposure of loans

Concerned over rising bad loans, the Reserve Bank will soon come out with a draft framework on large exposure of bank loans to corporates.

PTI| Updated: Apr 05, 2016, 15:51 PM IST
RBI to soon release framework for large exposure of loans

Mumbai: Concerned over rising bad loans, the Reserve Bank will soon come out with a draft framework on large exposure of bank loans to corporates.

"Taking into account the views and suggestions from stakeholders on the discussion paper on 'Large Exposures Framework and Enhancing Credit Supply through Market Mechanism', a fresh discussion paper will be issued by April 30, 2016 on large borrowers meeting part of their funding requirements from markets," RBI Governor Raghuram Rajan said.

A draft circular on the Large Exposures Framework will be issued for public comments in June 2016, which is to be implemented by January 1, 2019, he said, after unveiling the first bi-monthly monetary policy review for 2016-17.

In order to promote start-ups in the country, RBI will also release norms with respect to deferred payment.

"In addition, guidelines in respect of deferred payment through escrow/indemnity arrangement for transfer of shares, enabling investment by foreign venture capital investors (FVCIs) in start-ups and overseas investment operations for start-ups will be issued soon in consultation with the government," he said.

The simplification of process for dealing with delayed reporting of FDI transactions and provisions for an enabling external commercial borrowing regime for start-ups are being examined by the government and RBI.

On rationalisation of the branch authorisation policy, RBI said there is need to review in light of changes in mode of delivery of banking services.

Currently, banks provide services through a variety of business outlets ? branches, extension counters, satellite offices, mobile branches, ultra small branches and the like.

The current policy approach is to facilitate adequate outreach of banking outlets in unbanked areas while at the same time providing autonomy to banks to decide their business strategy.

"Given that regulations are written in terms of branches, with a view to facilitating financial inclusion and providing flexibility on the choice of delivery channel, it is proposed to redefine branches and permissible methods of outreach, keeping in mind the various attributes of the banks and the types of services that are sought to be provided," it said.

As there is improvement in the situation, RBI said, it has been decided that it is not necessary to activate Countercyclical Capital Buffers (CCCB) at this point in time.

It further said a Supervisory Enforcement Framework intended to meet the principles of natural justice and global standards of transparency, predictability, standardisation, consistency, severity and timeliness of action will be formalised by June 2016.

With regard to cyber risks, RBI said it has commenced detailed examination of IT used by banks on a pilot basis during the current year.

"IT examination reports are being issued separately so as to strengthen the information security preparedness of banks as well as assess the effectiveness of IT adoption by banks. Moving forward, it is planned to cover major banks in 2016-17 and all banks from 2017-18," it said.

RBI has constituted an expert panel under Chairperson Meena Hemachandra on IT Examination and Cyber Security to provide broad guidance on its approach.

On introduction of money market futures, RBI said it is important to develop such market segments which could signal expectations of market participants, while allowing hedging of asset-liability mismatches.

"It has been decided to allow futures at an appropriate money market rate. The contract specifications will be decided in consultation with market participants and the Securities and Exchange Board of India (Sebi) by end-September 2016," it said.

The Working Group on Enhancing Liquidity in the Government Securities and Interest Rate Derivatives under chairmanship of RBI Deputy Governor R Gandhi had recommended introduction of interest rate futures based on the overnight call money borrowing rate.

With a view to easing the process of investment by gilt account holders, it will be made incumbent on custodians to provide all gilt account holders access to the Negotiated Dealing System-order matching (NDS-OM) web facility to enable them to trade directly on the platform.

"A similar facility is also proposed to be extended to foreign portfolio investors (FPIs). Detailed guidelines in this regard will be issued by end-June 2016," it said.

In order to broaden participation in OTC derivatives and provide a safe trading environment, it is proposed to put in place a policy framework for authorisation of electronic platforms with linkage to an approved central counterparty for settlement.

The framework will also cover forex platforms to facilitate hedging by small and retail customers, it said, adding that the draft framework will be placed on the website for a wider feedback by end-September 2016.

With regard to easing of restrictions on plain vanilla forex options, it said detailed guidelines will be issued by end-September 2016.

Currently, plain vanilla currency options require adherence to stringent suitability and appropriateness norms although they are considered a generic product while forward contracts are exempt from the same.

It is proposed to bring plain vanilla forex options bought by bank clients at par with forex forwards on regulatory requirements.