Prudential Regulations for All India Financial Institutions
The Reserve Bank of India (RBI) has issued Master Directions for All India Financial Institutions (AIFIs) to ensure their financial stability and soundness. These directions cover prudential regulations on Basel III capital framework, exposure norms, significant investments, classification, valuation, and operation of investment portfolio norms, and resource raising norms.
Basel III Capital Framework: AIFIs must maintain a minimum Common Equity Tier 1 (CET1) capital ratio of 5.5%, Tier 1 capital ratio of 7%, and Total Capital Ratio of 10.5%. They must also maintain a Capital Conservation Buffer (CCB) of 2.5% and a Counter-cyclical Buffer (CCyB) as specified by the RBI.
Exposure Norms: AIFIs are required to maintain a maximum exposure of 20% of their capital funds to a single borrower/group of borrowers. They must also maintain a maximum exposure of 50% of their capital funds to a single industry/sector.
Significant Investments: AIFIs are permitted to make significant investments in other financial institutions, subject to certain conditions and approval from the RBI.
Classification, Valuation, and Operation of Investment Portfolio: AIFIs must classify their investments into three categories: Held to Maturity (HTM), Available for Sale (AFS), and Fair Value through Profit or Loss (FVTPL). They must value their investments at fair value and maintain a provision for depreciation.
Resource Raising Norms: AIFIs are permitted to raise resources through various instruments, including bonds, debentures, and shares, subject to certain conditions and approval from the RBI.
The Master Directions are effective from April 1, 2023, and AIFIs must comply with these regulations to ensure their financial stability and soundness.
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