Capital Adequacy Norms - Treatment of banks’ investments in subsidiaries/ associates and of the subsidiaries’ /associates’ investments in parent banks - ਆਰਬੀਆਈ - Reserve Bank of India
Capital Adequacy Norms - Treatment of banks’ investments in subsidiaries/ associates and of the subsidiaries’ /associates’ investments in parent banks
RBI/2007-2008/341 May 30, 2008 The Chairman / CMD/ MD/ CEO Dear Sir, Capital Adequacy Norms – Treatment of banks’ investments in subsidiaries/ associates and of the subsidiaries’ /associates’ investments in parent banks Please refer to the paragraph 2.1.3 of the Master Circular DBOD No. BP.BC. 4/21.01.002 / 2007-08 dated July 2, 2007 on ‘Prudential Norms on Capital Adequacy’ and paragraph 4.4.6 of our circular DBOD. No. BP.BC. 90 / 20.06.001/ 2006-07 dated April 27, 2007 on ‘Implementation of New Capital Adequacy Framework’ regarding the treatment of banks’ investments in subsidiaries / associates for the purpose of capital adequacy norms. 2.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 and it has been decided to revise the norms, both under the Basel - I and Basel - II Frameworks, as detailed below. 2.1. Bank’s investment in a subsidiary / an associate There is no change in the instructions in regard to the treatment of a bank’s investment in its subsidiary / associate under the Basel II Framework. 2.2Investments by a banking subsidiary / banking associate in its parent bank The treatment of investment by the non-banking financial subsidiaries / associates in the parent bank’s regulatory capital would, however, be governed by the applicable regulatory capital norms of the respective regulators of such subsidiaries / associates. 3. It may please be noted that for the purpose of the foregoing norms, an “associate” would be defined as an entity in which the parent bank has an equity stake exceeding 30 per cent but less than 50 per cent of the paid up capital of the investee entity. Yours faithfully, (Prashant Saran) |