RBI Delays Issuance of Guidelines on Capital Market Exposures Until July

RBI Defers Capital Market Exposure Norms for Banks

The Reserve Bank of India (RBI) has deferred its circular on capital market exposures of banks by three months, citing representations from industry associations. The central bank has clarified a clutch of points made in its circular from February, which was aimed at providing an enabling framework for banks to finance acquisitions by Indian corporates.

According to the RBI, it had issued the final guidelines in February after due consideration of the feedback received as part of public consultation. The directions were meant to rationalize the limits for lending by banks to individuals against shares, units of REITs, InvITs, etc. and put in place a more principle-based framework for lending to capital market intermediaries (CMIs).

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The RBI has also clarified that bank financing to CMIs or for proprietary trading may be undertaken against 100% collateral comprising cash or cash equivalents. Additionally, the prohibition on extending finance to market makers against securities in which the market making operations are undertaken has been removed.

Industry associations had sought regulatory intervention to defer the implementation of RBI's directives to banks to tighten funding to proprietary traders. The Association of NSE Members of India (ANMI) had written to the Securities and Exchange Board of India, stating that the RBI's norms would impact both price efficiency and liquidity and may even give an edge to foreign proprietary desks over their India counterparts.