Capital Market Exposure Policy 2024-2025 PDF

Policy on Capital market Exposure 2024-25  Policy on Capital market Exposure 2024-25  Session objectives Meaning of capital Market Exposure Components of Capital Market Exposure Prudential exposure norms fixed by RBI Precautions for Capital market Exp...

Policy on Capital market Exposure 2024-25  Policy on Capital market Exposure 2024-25  Session objectives Meaning of capital Market Exposure Components of Capital Market Exposure Prudential exposure norms fixed by RBI Precautions for Capital market Exposure Other related guidelines  Capital Market Exposure Capital Market refers to a financial system concerned with raising capital by dealing in shares, bonds, and other long-term investments. Capital Market Primary Market Secondary Market Initial public offering (IPO) An auction market Rights issue or offering A dealer market Private placement NSE or BSE Preferential allotment * Both the markets are regulated by Securities Exchange Board of India (SEBI) in India. 4  Components of CME Bank’s exposure to Capital market includes the following: Direct Investment in Equity Shares, Convertible Bonds, Convertible Debentures and units of Equity oriented Mutual Funds Advance against shares or bonds or debentures or other securities or on clean basis to individuals for investment in equity shares, Convertible Bonds, Convertible Debentures and units of Equity oriented Mutual Funds Advance for any other purposes where shares or convertible debentures or convertible bonds or units of Equity oriented Mutual Funds etc. are taken as primary security Advances for any other purposes to the extent secured by the collateral security of shares or convertible bonds or convertible debentures or units of equity oriented mutual funds, where the primary securities are not adequate to cover the advances *CME- Capital Market Exposure  Components of CME Bank’s exposure to Capital market includes the following: Secured and Unsecured advances to Stockbrokers and Guarantees issued on behalf of Stockbrokers and Market Makers Loans sanctioned to corporates against the shares or bonds or debentures or other securities or on clean basis for meeting promoter’s contribution to the equity of new companies in anticipation of raising resources Bridge Loans to companies against expected equity flows or issues Underwriting commitments taken up by Bank in respect of Primary Issues of Shares or Convertible Bonds or Convertible Debentures or Units of Equity oriented Mutual Funds Financing to Stock Brokers for Margin Trading *CME- Capital Market Exposure  Components of CME Bank’s exposure to Capital market includes the following: All exposures to Venture Capital Funds (Both Registered or Unregistered). Loans to Mutual Funds against equity-oriented schemes and Irrevocable Payment Commitments (IPCs) issued to stock exchanges (BSE & NSE) on behalf of Mutual Funds or FIIs *CME- Capital Market Exposure IPCs- Irrevocable Payment Commitments BSE- Bombay Stock Exchange NSE- National Stock Exchange FIIs- Foreign Institutional Investors  Capital market Cell In the endeavor to have various products in our portfolio so as to become a one stop shop to meet the financial requirements of all segments of society, the Capital Market Cell [CMC], was formed at our MS Marg branch, Mumbai specially to cater to the Broker community by acting as a Clearing Bank for Bombay Stock Exchange [BSE] and National Stock Exchange [NSE]. The CMC is functional since 01.04.2005.  Statutory Limit In terms of Section 19(2) of the Banking Regulation Act, 1949, the Bank shall not hold shares in any company, whether as pledgee, mortgagee or absolute owner, of an amount exceeding: 30% of the paid- up share capital or 30% of own paid- up share capital of that company and reserves whichever is less As per RBI directions, the aggregate exposure to the capital market in all forms (both fund based and non- fund based) should not exceed 40% of Net worth as per last audited Balance-sheet. MAXIMUM Regulatory ceiling for Capital However, Bank has restricted its total market Exposure exposure to Capital Market at 15% of its Net Worth as per last audited Balance sheet.  Net Worth calculation Investment Paid up Equity Free Share Profit & Loss Fluctuation Capital Reserves Premium account (Cr) Reserves Intangible Accumulated assets losses Revaluation Reserves and provisions shall not be added to calculate net worth of bank  Exclusions from CME Bank’s Investment in Own subsidiaries, Joint Ventures, sponsored Regional Rural Banks (RRBs) Tier I &Tier II debt instruments issued by other Banks Investment in Certificate of Deposits (CDs) of other banks Preference Shares Non-Convertible Debentures & Bonds Units of Mutual funds under Debt schemes Term Loan sanctioned to Indian promoters for acquisition of equity in overseas Joint Ventures (JVs)or Wholly Owned Subsidiaries (WOS) under the refinance scheme of Export Import Bank of India (EXIM Bank) Promoters’ shares in the SPV of an infrastructure project pledged to the lending bank for infrastructure project lending. Exposure to brokers under the currency derivates segment *CME- Capital Market Exposure SPV- Special Purpose Vehicle  Exposure Computation Sanctioned limits or Outstanding, whichever is higher In the case of fully drawn term loans, bank may reckon the outstanding as the exposure. Bank’s direct investment in shares, convertible bonds, convertible debentures and units of equity-oriented mutual funds would be calculated at their cost price. Intraday Ceiling At present, Bank has fixed umbrella limit of Rs. 50 crores for the Capital Market Cell as a whole for Intra Day Exposures within the overall ceiling of 15% of Net worth prescribed by Bank. The limit is exclusive of the intraday facility granted to NSE or BSE and others against their sanctioned limits.  Intra-Group Ceiling Single Group Entity Exposure 5% of Paid-up Capital and Reserves in case of non-financial companies and unregulated financial services companies 10% of Paid-up Capital and Reserves in case of regulated financial services companies Aggregate Group Exposure 10% of Paid-up Capital and Reserves in case of all non-financial companies and unregulated financial services companies taken together 20% of Paid-up Capital and Reserves in case of the group i.e. all group entities (financial and non-financial) taken together ITEs: Intra-Group Transactions and Exposures  Conversion of Debt to Equity Bank will have the right to convert a portion of the debt amount into equity in the event of restructuring of advances. Conversion of debt into preference shares is to be done only as a last resort. Restricted to a cap of 10 per cent of the restructured debt Conversion of debt into equity should be done only in the case of listed companies This will be subject to reporting of such holdings to RBI, Department of Banking Supervision (DBS), every month along with the regular DSB Return on Asset Quality.  Benchmarks CAC-I CAC-II CAC-III ZLCC Headed by CGM Headed by GM 100% of the 100% of the 100% of the ZLCC Mumbai up to up to Rs.25 Crores delegated authority delegated authority delegated authority Rs.75 Crores, Other per Party or Group of CAC-I of CAC-II of CAC-III ZLCCs up to Rs.25 Crores per Party or Group. The delegation entrusted to ZLCC is without deviation ZLCC other than Mumbai are not vested with delegation for allowing intraday facility, excess and TOD under Capital market Exposure. Capital Market Cell, MS Marg, Mumbai shall ensure that the Intra Day Overdraft allowed to all brokers is adjusted by the end of the day. TOD: Temporary Overdraft  Securities The Bank shall accept the shares appearing in the list approved by BSE or NSE for sanction of loans and advances to Individuals. Capital Market Cell at MS Marg may also sanction advance to individuals against shares, other than the approved list of the BSE or NSE Exchanges listed with these exchanges but not below face value of the shares, on case-to-case basis. In respect of facilities extended to the Brokers, only Capital Market Cell at MS Marg, Mumbai may accept shares as approved by BSE or NSE for collateral purpose. In order to avoid concentration risk, it is proposed to impose the following restrictions while accepting shares as security for exposures to Brokers: − The exposure to a Single Company for all the brokers taken together does not exceed 20% of the overall Capital Market Exposure (FB + NFB) − The exposure to a Single Broker in respect of one Company does not exceed 20% of their total securities with minimum of 5 Scrips of approved companies.  Advances against shares to individuals Loan against the security of shares, convertible debentures and convertible bonds may be granted to individuals to meet contingencies and personal needs or for subscribing to new or rights issues of shares or debentures or bonds Loans against security of shares, convertible bonds, convertible debentures and units of equity oriented mutual funds to individuals from the banking system should not exceed the limit of Rs.10 lakh per individual if the securities are held in physical form and Rs. 20 lakhs per individual if the securities are held in demat form. As per extant guidelines, only securities in the Demat form from the specified list approved by the Bank shall be considered for financing. A minimum margin of 50% subject to RBI guidelines from time to time shall be maintained Against the shares appearing on the Approved List of Bank, facility may be granted to Individuals by way of Loan or SOD. SOD: Secured overdraft. 19  Initial Public Offerings (IPOs) Bank may grant advances to individuals for subscribing to IPOs Loan should not exceed the limit of Rs.10 lakh for subscribing to IPOs The corporates should not be extended credit by banks for investment in other companies’ IPOs Bank should not provide finance to NBFCs for further lending to individuals for IPOs PSU: Public Sector Unit NBFC: Non-Banking Financial Companies 20  Advance against Mutual Funds While granting advances against units of Equity linked Mutual Funds, the Bank should adhere to the following guidelines: The Units should be listed in the Stock Exchanges or repurchase facility for the Units of mutual fund should be available at the time of lending. The Units should have completed the minimum lock-in-period The amount of advances should be linked to the Net Asset Value (NAV)or repurchase price or the market value, whichever is lower and not to the face value. A minimum margin 50% shall be maintained on the NAV or market value, whichever is less The maximum advance against units shall not exceed Rs 20 lacs.  Approved List of Securities Advance to individuals shall be restricted to shares of such companies, which are on the Approved List of the Bank. The Approved List of the Bank is based on the INDEX Scrips such as BSE Sensex (30 companies) & NIFTY (50 companies). This List is applicable for all branches including Capital Market Cell, MS Marg, Mumbai and is available on BSE or NSE sites. BSE has further classified shares or scrips into segments viz. A group, B group, T, S, TS, SLB and Z groups based on liquidity, quality, turnover, tangible assets among other factors. In view of the aforesaid classification & risk perception, shares in “S or TS or T or Z or SLB” segment shall not be accepted as security by any Branch including Capital Market Cell, MS Marg Branch. However, deviation may be permitted by CAC-II and above at Central Office on case-to-case basis for “S” segment only. 22  Other guidelines No advance shall be granted against partly paid shares. No loans to be granted to partnership or proprietorship concerns against the primary security of shares and debentures. Branches or Offices should ensure that the scrips lodged with them as security are not stolen or duplicate or fake or benami. Any irregularities coming to their notice should be immediately reported to RBI. Our Bank already has a product for the Primary Market segment viz UNION IPO. The Bank also has a product for the Secondary Market segment viz UNION SHARES.