RBI retains 10% cap on FI debt investments

In line with the guidelines for non-SLR investments for banks, the Reserve Bank of India yesterday clarified the investment norms for financial institutions.

As per the circular, investment in units of mutual fund schemes, where the entire corpus is invested in non-government debt securities, will be outside the purview of the above guidelines till December 31, 2004.

The circular has reiterated the fact that the total investment in the unlisted debt securities should not exceed 10 per cent of the FIs' total investment in debt securities, which fall within the ambit of these guidelines, as on March 31(June 30 in case of NHB), of the previous year.

However, security receipts (SRs) issued by securitisation companies / reconstruction companies registered with the RBI and asset-backed securities (ABS) and mortgage-backed securities (MBS) which are rated at or above the minimum investment grade will not be reckoned as 'unlisted debt securities' for monitoring compliance.

Under compliance, it has been specified that with effect from January 1, 2005, investment in units of such schemes of mutual fund which have an exposure to unlisted debt securities of less than 10 per cent of the corpus of the scheme would be treated on par with listed securities for the purpose of the prudential limits.

Therefore, till December 31, 200, for investments in such units will attract prudential limits. In addition to this, the FIs may invest until March 31, 2004 in the existing unlisted securities, which were issued on or before November 30, 2003.

In case, the issuers have applied to the stock exchanges for listing of such unlisted securities and the security is rated as minimum investment grade, the FIs may continue to invest in such unlisted securities even after March 31, 2004 but only until December 31, 2004.

As regards the unlisted securities issued after November 30, 2003, the FIs may invest, till December 31, 2004, up to 10 per cent of the incremental investments over the corresponding figure of outstanding investments as on November 30, 2003.

Finally, those FIs will be eligible to make fresh investments in unlisted securities, whose investments in such securities are within the prudential limits prescribed with effect from January 1, 2005.

The instruments attracting the prudential norms include debt instruments issued by companies, banks, FIs and state and central government-sponsored institutions, SPVs, debt instruments/ bond issued by central or state public sector undertakings, with or without government guarantee; units of debt-oriented schemes of Mutual Funds i.e., the schemes whose major part the corpus is invested in debt securities and capital gains bonds and the bonds eligible for priority sector status.