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RBI / 2006-07 / 80
DBOD.No.BP.BC. 23 / 21.01.002 / 2006-2007
July 21, 2006
All Commercial Banks(Excluding RRBs)
Dear Sir
Enhancement of banks’ capital raising options
for capital adequacy purposes
As you are aware, with a view to provide banks
in India additional options for raising capital funds, to meet both the increasing
business requirements as well as the Basel II requirements within the existing
legal framework, it was decided to allow banks to augment their capital funds
by issue of, among others, Innovative Perpetual Debt Instruments (IPDI) eligible
for inclusion as Tier 1 capital and Debt Capital Instruments qualifying for
Upper Tier II capital (Upper Tier II Instruments).
2. The guidelines governing the IPDI and
Debt Capital Instruments Qualifying for upper Tier II capital indicating the
minimum regulatory requirements, were issued vide our circular DBOD. No.BP.BC.57/
21.01.002 / 2005-06 dated January 25, 2006. In terms of these guidelines banks
are allowed to issue these instruments in Indian Rupees and were required to
obtain prior approval of the Reserve Bank of India, on a case-by-case basis,
for issue in foreign currency.
3. The above guidelines have been reviewed
and it has been decided to make the following changes:
3.1 Innovative Perpetual Debt Instruments (IPDI)
i) The total amount raised by a bank through IPDIs
shall not be reckoned as liability for calculation of net demand and
time liabilities for the purpose of reserve requirements and, as such, will
not attract CRR/SLR requirements.
ii) The total amount raised by a bank through IPDIs shall not exceed 15 per
cent of total Tier 1 capital. The eligible amount will be computed with reference
to the amount of Tier 1 capital as on March 31 of the previous financial year,
after deduction of goodwill and other intangible assets but before the deduction
of investments.
iii) Investment by FIIs in IPDI raised in Indian Rupees shall be outside the
ECB limit for rupee denominated corporate debt( currently USD 1.5 billion) fixed
for investment by FIIs in corporate debt instruments.
iv) Banks may augment their capital funds through the issue of IPDI in foreign
currency without seeking the prior approval of the Reserve Bank of India, subject
to compliance with the undermentioned requirements:
a) IPDI issued in foreign currency should comply
with all terms and conditions applicable in the guidelines issued on January
25, 2006, unless specifically modified in these guidelines.
b) Not more than 49% of the eligible amount can be issued in foreign currency.
c) IPDI issued in foreign currency shall be outside the limits for foreign currency
borrowings indicated in sub paragraphs 3.2(ii) and 3.2(iii) below.
3.2 Upper Tier II Instruments
Banks may augment their capital funds through
the issue of Upper Tier II Instruments in foreign currency without seeking the
prior approval of the Reserve Bank of India, subject to compliance with the
undermentioned requirements:
i) Upper Tier II Instruments issued in foreign
currency should comply with all terms and conditions applicable as detailed
in the guidelines issued on January 25, 2006, unless specifically modified in
these guidelines.
ii) The total amount of Upper Tier II Instruments
issued in foreign currency shall not exceed 25% of the unimpaired Tier I capital.
This eligible amount will be computed with reference to the amount of Tier 1
capital as on March 31 of the previous financial year, after deduction of goodwill
and other intangible assets but before the deduction of investments.
iii) This will be in addition to the existing
limit for foreign currency borrowings by Authorised Dealers in terms of Master
Circular No. RBI/2006-07/24 dated July 1, 2006 on Risk Management and Inter-Bank
Dealings.
iv) Investment by FIIs in Upper Tier II Instruments
raised in Indian Rupees shall be outside the limit for investment in corporate
debt instruments i.e., USD 1.5 billion. However, investment by FIIs in these
instruments will be subject to a separate ceiling of USD 500 million.
4. Please acknowledge receipt.
Yours faithfully
( P.V.Bhaskar)
Chief General Manager
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