Non-SLR Investments of Banks - আৰবিআই - Reserve Bank of India
Non-SLR Investments of Banks
June 7, 2001 DBOD.BP.BC. 127 / 21.04.048 / 2000-01
All Commercial Banks
Dear Sir,
Non-SLR Investments of Banks
Please refer to para 4.3 of our circular DBOD.No.BP.BC.32/ 21.04.048/ 2000-01 dated October 16, 2000, advising banks to formulate investment policy with the approval of their Board of Directors, which should also adequately address risk management aspects. Banks have also been advised vide para 4 of our circular DBOD. No. BP.(SC).BC.98 / 21.04.103/ 99 dated October 7, 1999 on Risk Management Guidelines to look into specific risk management aspects while processing investment proposals.
2. A recent review of the non-SLR investment portfolio of banks has revealed that some banks have made significant investment in privately placed unrated bonds and, in certain cases, in bonds issued by corporates who are not their borrowers. While assessing such investment proposals on private placement basis, in the absence of standardised and mandated disclosures, including credit rating, banks may not be in a position to conduct proper due diligence to take an investment decision. Thus, there could be deficiencies in the appraisal of privately placed issues. While it is not the intention to prohibit banks from subscribing to unrated instruments on private placement basis, however, as such investments could cause some concern, banks should put in place appropriate systems to ensure that investment in privately placed unrated instruments is made in accordance with the systems and procedures prescribed under the respective banks investment policy approved by the Board.
3. Further, the risk arising from inadequate disclosure in offer documents should be recognised and banks should prescribe minimum disclosure standards as a policy with Board approval. In this connection, we may state that Reserve Bank of India had constituted a Technical Group comprising officials drawn from treasury departments of a few banks and experts on corporate finance to study , inter-alia, the methods of acquiring, by banks, of non-SLR investments in general and private placement route, in particular and to suggest measures for regulating these investments. The Group had designed a format containing the minimum disclosure requirements as well as certain conditionalities regarding documentation and creation of charge for private placement issues, which may serve as a 'best practice model' for the banks. We enclose the details of the Groups recommendations in the Annexure and advise that banks may introduce with immediate effect suitable format of disclosure requirements on the lines of the recommendations of the Technical Group with the approval of their Board.
4. With a view to ensuring that the investments by banks in unrated issues through private placement, both of the borrower customers and non-borrower customers, do not give rise to systemic concerns, it is necessary that banks should ensure that their investment policies duly approved by the Board of Directors are formulated after taking into account the following aspects:
5. These instructions may be placed before the Investment Committee/ Board of Directors of the bank for their information.
6. Please acknowledge receipt.
Yours faithfully,
(M.R. Srinivasan)
Encls: As above The guidelines have been repealed. Please refer to the Reserve Bank of India (Classification, Valuation and Operation of Investment Portfolio of Commercial Banks) Directions, 2021.
Recommendations of the Group on Non-SLR investments of banks
Pro-forma of minimum disclosure requirements in respect of private placement issues - Model Offer Document
All issuers must issue an offer document with terms of issue, authorised by Board Resolution not older than 6 months from the date of issue. The offer document should specifically mention the Board Resolution authorising the issue and designations of the officials who are authorised to issue the offer document. The offer document may be printed or typed "For Private Circulation Only". The Offer Document should be signed by the authorised signatory. The offer document should contain the following minimum information :
I. General Information
III. The model offer document should also contain the following information :
(1) Interest rate payable on application money till the date of allotment.
(2) Security : If it is a secured issue, the issue is to be secured, the offer documents should mention description of security, type of security, type of charge, Trustees, private charge-holders, if any, and likely date of creation of security, minimum security cover, revaluation, if any.
(3) If the security is collateralised by a guarantee, a copy of the guarantee or principal terms of the guarantee are to be included in the offer document.
(4) Interim Accounts, if any.
(5) Summary of last audited Balance Sheet and Profit & Loss Account with qualifications by Auditors, if any.
(6) Last two published Balance Sheet may be enclosed.
(7) Any conditions relating to tax exemption, capital adequacy etc. are to be brought out fully in the documents.
(8) The following details in case of companies undertaking major expansion or new projects :- (copy of project appraisal may be made available on request)
(9) If the instrument is of tenor of 5 years or more, projected cash flows.
IV .Banks may agree to insist upon the following conditionalities for issues under private placements
All the issuers in particular private sector corporates, should be willing to execute a subscription agreement in case of all secured debt issues, pending the execution of Trust Deed and charge documents. A standardised subscription agreement may be used by the banks, inter-alia, with the following important provisions.
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