The Reserve Bank of India (RBI) has introduced norms on the Basel III capital framework, fund raising, exposure guidelines, and norms on classification and valuation of investment portfolios for All India Financial Institutions (AIFIs).
The framework will come into effect from April 2024.
Five AIFIs regulated by RBI
- India has five AIFIs regulated by RBI, namely the Export-Import Bank of India (EXIM Bank), the National Bank for Agriculture and Rural Development (Nabard), the National Bank for Financing Infrastructure and Development (NaBFID), the National Housing Bank (NHB), and the Small Industries Development Bank of India (SIDBI).
Framework provisions
- AIFIs will be required to maintain a minimum total capital of 9 per cent by April 2024, wherein minimum tier-I capital will need to be at 7 per cent and common equity tier-I (CET-1) capital at 5.5 per cent.
- All financial subsidiaries, except those engaged in insurance and non-financial activities (both regulated and unregulated), will need to be fully consolidated for the purpose of capital adequacy.
- The RBI has capped AIFIs’ investments in capital instruments of banking, financial, and insurance entities at 10 per cent of their capital funds.
- AIFIs will not be allowed to acquire a fresh stake in a bank’s or AIFI’s equity shares if the acquisition leads to its holding exceeding 5 per cent of the investee’s equity capital.
- AIFIs’ equity investment in a single entity cannot exceed 49 per cent of the equity of the investee.
- While AIFIs can hold this entire 49 per cent stake as a pledgee, if the acquisition is against AIFI’s claims, the stake will need to be brought below 10 per cent within three years.
