. to strengthen the capital base of such companies and reduce the possibility of excessive leverage, capital adequacy requirements were introduced besides the credit concentration norms. a capital adequacy ratio of 10 per cent, which is higher than that for banks, was prescribed for nbfcs - nd - si with effect from april 01, 2007. 35. apart from capital adequacy norms, single and group credit / investment concentration norms were also introduced with effect from april 01, 2007 for nbfcs - nd - si in as much as they could not lend to or invest in shares of any single entity exceeding 15 per cent of their owned fund ; and to any single group of borrowers exceeding 25 per cent of their owned fund ; or lend and invest ( loans / investments taken together ) more than 25 per cent of owned fund to a single party ; and 40 per cent of owned fund to a single group of parties. countercyclical prudential measures 36. from 2004 through 2007, in conjunction with monetary policy, the rbi used preemptive countercyclical provisioning and differential risk weights to contain excessive credit growth to sectors that showed signs of risk building up. these include sectors where asset prices were increasing rapidly ( such as real estate and capital markets ) and retail or personal loan sectors where underwriting standards, were perceived to have been diluted during the phase of very high credit growth. for instance, in 2004, a higher risk weight of 125 per cent ( earlier 100 per cent ) was prescribed for consumer credit, including personal loans and credit cards receivables. similarly, in july 2005, the continued rapid expansion in credit to the capital market and commercial real estate sector prompted the reserve bank to increase the risk weights on banks ’ exposure to these sectors to 125 per cent. about a year later in may 2006, the risk weight on commercial real estate exposure was further increased from 125 per cent to 150 per cent. in january 2007, the risk weight for bank ’ s exposure to nbfc - nd - si was increased from 100 per cent to 125 per cent. the higher risk weight applicable to these sectors were found to be an effective tool for moderating credit growth, besides serving the prudential purpose. anticipating the deterioration in credit quality that is expected in the context of high credit growth, the general provisioning requirement on standard advances in certain sensitive sectors, viz., capital market exposure, residential housing loans beyond rs. 20 lakh

regulate executive compensation in private sector banks. it is the statutory responsibility of rbi to ensure that the remunerations of bank ceos and whole time directors are not excessive. in terms of section 35 b of the banking regulation act, 1949, the banks in the private sector and foreign banks in india are required to obtain the approval of the reserve bank for remuneration payable to their ceos while the remuneration of public sector bank ceos is fixed by the government of india. 29. the rbi ensures that executive compensation, whether it is in the form of cash or stock, is appropriate, taking into account the financial position of the concerned bank and also the industry practice. the rbi has instructed the boards of the private sector banks to fix remuneration package of ceos at a reasonable level in light of industry practice in india. further, the annual bonuses of ceos of private sector banks are capped at a certain percentage of their base salary. the remuneration committees of banks, consisting of independent directors, are made responsible for implementation of compensation structure in banks. restrictions on external debt intermediation by banks and fis 30. as a measure of capital account management, banking system ’ s access to overseas markets has been regulated. some liberalisation was allowed in 2004, when banks in india were permitted to raise overseas funds not exceeding 25 per cent of their unimpaired tier i capital or equivalent of usd 10 million, whichever was higher. with a view to providing greater flexibility to authorised dealer category – i banks in seeking access to overseas funds, this facility was further liberalised in october 2008 and the aforesaid limit was raised to 50 per cent of their unimpaired tier i capital. apart from this window, banks in india also have access to global financial markets to raise regulatory capital instruments, including capital funds raised / augmented by the issue of innovative perpetual debt instruments and debt capital instruments in foreign currency and any other overseas borrowings with the specific approval of the reserve bank. similarly, there are restrictions on the borrowing abroad by financial institutions. these measures have ensured that overseas lenders take risk on companies directly and do not leverage on the comfort of intermediation by a bank or a financial intermediary. market infrastructure 31. an institutional mechanism initiated by rbi for minimising settlement risk was the setting up the clearing corporation of india ltd ( ccil ) in 2001 as a central counter party. it provides an institutional structure for the clearing and settlement of transactions undertaken