Page 54 - Banking Finance November 2022

RBI CIRCULAR

guidelines for SPDs, the capital charge for market 02.03.137/2010-11 dated February 03, 2011 (as
risk in foreign exchange exposures shall be higher amended from time to time).
of the charges worked out by the standardised
5. Further, reference is also drawn to sub-clause (i)(a) of
approach and the internal risk management
para 12(5) of Master Direction – Standalone Primary
framework-based Value at Risk (VaR) model.
Dealers (Reserve Bank) Directions, 2016 in terms of
Further, under the standardised approach, SPDs
which SPDs are permitted to undertake investment/
shall maintain a market risk capital charge of 15%
trading in equity and equity derivatives market as a part
for net open positions (limits or actual, whichever
of their non-core activity. On a review, it has been
is higher) arising out of forex business with a risk
decided to permit SPDs to take up trading and self-
weight of 100%. The net open position for foreign
clearing membership with SEBI approved stock
exchange exposures shall be calculated as per the
exchanges/ clearing corporations for undertaking
methodology prescribed in para 8.5 of Master
proprietary transactions in equity and equity derivatives
Circular – Basel III Capital Regulations dated April
market as permitted in sub-clause (i)(a) of para 12(5)
01, 2022 (as amended from time to time) to the
of the aforementioned Master Direction for SPDs.
extent applicable to SPDs. Capital charge for
While doing so, SPDs shall comply with all the regulatory
market risk shall be over & above the capital
norms laid down by SEBI and all the eligibility criteria/
charge for credit risk of 15% as per directions
rules of stock exchanges and clearing corporations.
prescribed in Master Directions – Standalone
Primary Dealers (Reserve Bank) Directions, 2016 6. The Master Direction – Standalone Primary Dealers
dated August 23, 2016 (as amended from time to (Reserve Bank) Directions, 2016 dated August 23, 2016
time). is being modified accordingly.
b. In addition to the foreign exchange exposure limits
prescribed under Master Direction – Risk Review of Regulatory Framework for Asset
Management & Inter-Bank Dealings dated July 05,
Reconstruction Companies (ARCs)
2016 (as amended from time to time), the capital
charge for market risk (calculated as per provisions October 11, 2022
of Master Direction – Standalone Primary Dealers
(Reserve Bank) Directions, 2016) for all the 1. ARCs play a vital role in the management of distressed
permissible non-core activities, including foreign financial assets of banks and financial institutions.
exchange activities, shall not be more than 20% Considering their critical role, a need was felt to review
of the Net Owned Fund of the SPD as per last their functioning and operating framework.
audited balance sheet. Accordingly, as part of the Statement on
4. SPDs shall continue to comply with the provisions of Developmental and Regulatory Policies released along
FEMA and all rules, regulations and directions issued with the Monetary Policy Statement on April 7, 2021,
thereunder; and also, the following directions to the the Reserve Bank of India had set up a Committee to
extent applicable: undertake a comprehensive review of the working of
i. Master Direction – Risk Management and Inter- ARCs and recommend suitable measures for enabling
Bank Dealings dated July 05, 2016 (as amended them to function in a more transparent and efficient
from time to time). manner.
ii. Master Direction – Reserve Bank of India (Market- 2. Based on the Committee’s recommendations and
makers in OTC Derivatives) Directions, 2021 dated feedback from the stakeholders, the extant regulatory
September 16, 2021 (as amended from time to framework for ARCs has been amended as detailed in
time). the Annex.
iii. Guidelines for Internal Control over Foreign 3. These guidelines shall be effective immediately or as
Exchange Business - FE.CO.FMD.No.18380/ indicated otherwise in the Annex.

54 | 2022 | NOVEMBER | BANKING FINANCE