Lok Sabha Question No. 4036 (UNSTARRED), answered on 2016-12-09
Subject: Masala Bonds
Ministry: FINANCE
Asked by: M. UDHAYAKUMAR

## GOVERNMENT OF INDIA MINISTRY OF FINANCE DEPARTMENT OF FINANCIAL SERVICES

## LOK SABHA UNSTARRED QUESTION NO.4036

TO BE ANSWERED ON THE 9 th  December, 2016/ Agrahayana 18, 1938 (SAKA)

## Masala Bonds QUESTION

## 4036.  ADV.  M. UDHAYAKUMAR:

Will the Minister of FINANCE be pleased to state:

- (a) whether  the  banks  proposes  to  issue  masala  bonds  which  helped  lenders  with  funds  for infrastructure and affordable housing;
- (b) if so, the details thereof;
- (c) whether the Reserve Bank of India proposed to limit exposure of a bank to a business group to 25% of its capital; and
- (d)        if so, the details thereof?

## ANSWER

The Minister of State in the Ministry of Finance (SHRI SANTOSH KUMAR GANGWAR)

(a) & (b):  Reserve Bank of India (RBI) has informed that as part of the package of measures announced on August 25, 2016 for development of fixed income and currency markets, in connection with developing the  market  for  rupee  denominated  bonds  overseas,  it  has  been  decided,  to  permit  banks  to  issue Perpetual  Debt  Instruments  (PDI)  qualifying  for  inclusion  as  Additional  Tier  1  capital  and  debt  capital instruments  qualifying for inclusion  as  Tier  2 capital, by  way  of  rupee  denominated  bonds  overseas.  It was also decided to allow banks to issue rupee denominated bonds overseas under the extant framework of incentivizing issuance of long term bonds by banks for financing infrastructure and affordable housing.

(c) & (d):  In order to address concentration risk and to align with internationally accepted practices, RBI has issued a circular dated December 1, 2016 on 'Large Exposure Framework'. The salient features of the Large Exposures (LE) Framework include:

- The sum of all exposure values of a bank to a counterparty or a group of connected counterparties is defined as a large exposure, if it is equal to or more than 10 percent of the bank's eligible capital base.
- The LE limit in respect of each counterparty and group of connected counterparties, under normal circumstances,  will  be  capped  at  20  percent  and  25  percent  respectively  of  the  eligible  capital base.
- The eligible capital base is defined as the Tier 1 capital of the bank as against 'Capital Funds' at present.
- A  group  of  connected  counterparties  is  identified  on  the  b asis  of  'control'  criteria.  Though 'economic  dependence'  criteria  had  been  included  in  the  draft  guidelines,  the  same  has  been excluded  in  the  final  circular  based  on  the  feedback  and  our  assessment  that  'economic dependence' criteria may be very difficult to implement in the Indian context.
- Banks'  exposure  to  Government,  Reserve  Bank,  clearing  related  exposures  to  QCCP  are excluded, at present. While the draft provided exemptions for interbank bank exposures from LE Framework, based on the Basel's latest u pdates, we have included the interbank exposures in the LE Framework i.e., interbank exposures will be subject to LE limits and reporting.
- The LE framework will be fully applicable with effect from April 1, 2019.

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