RBI/2006-2007/281
DBOD.
No. BP.BC. 66/ 21.01.002/ 2006-2007
March
6, 2007
All
Commercial Banks
(Excluding RRBs)
Dear
Sir,
Prudential
Limits for Inter- Bank Liabilities (IBL)
As
you are aware, in India, while the counterparty risk concentration on the assets
side has attracted adequate attention and received regulatory policy response,
the concentration risk on the liability side of the banks has not received similar
attention. Liability side management has its own merits from the point of view
of financial stability. Controlling the concentration risk on the liability side
of banks is therefore as important as controlling the concentration risk on asset
side. More particularly, uncontrolled IBL may have systemic implications, even
if, the individual counterparty banks are within the allocated exposure. Further,
uncontrolled liability of a larger bank may also have a domino effect. In view
of this, it has become important to put in place a comprehensive framework of
liability management so that banks are aware of the risks inherent in following
a business model based on large amount of IBL and the systemic risks such a model
may entail.
2.
In order to reduce the extent of concentration on the liability side of the banks,
the following measures are prescribed:
(a)
The IBL of a bank should not exceed 200% of its networth as on 31st March of the
previous year. However, individual banks may, with the approval of their Boards
of Directors, fix a lower limit for their inter-bank liabilities, keeping in view
their business model.
(b) The banks whose CRAR is at least 25% more than the minimum CRAR (9%) i.e.
11.25% as on March 31, of the previous year, are allowed to have a higher limit
up to 300% of the net worth for IBL.
(c)
The limit prescribed above will include only fund based IBL within India (including
inter-bank liabilities in foreign currency to banks operating within India). In
other words, the IBL outside India are excluded.
(d)
The above limits will not include collateralized borrowings under CBLO and refinance
from NABARD, SIDBI etc.
(e)
The existing limit on the call money borrowings prescribed by RBI will operate
as a sub-limit within the above limits.
(f)
Banks having high concentration of wholesale deposits should be aware of potential
risk associated with such deposits and may frame suitable policies to contain
the liquidity risk arising out of excessive dependence on such deposits.
3.
The above guidelines will be applicable from April 1, 2007. However, banks, which
are not in a position to comply with these requirements from April 1, 2007, may
furnish a plan to RBI for approval indicating the date by which they would be
able to comply with the requirements.
Yours
faithfully,
(Prashant
Saran)
Chief General Manager-in-Charge