RBI caps banks’ exposure to Reits, InvITs at 10% of unit capital

The Reserve Bank of India (RBI) on Monday amended the statutes making it possible for lenders to invest in Reits and InvITs capping such exposures to 10 per cent of the unit capital of such instruments, and also to regulate their commodity derivatives play.

In amendments to the Master Direction- Reserve Bank of India (Financial Services provided by banks) Directions, 2016, the central bank said banks should not invest more than 10 per cent of the unit capital of a real estate investment trust (Reit) or an infrastructure investment trust (InvIT) subject to overall ceiling of 20 per cent of its net worth.

The master directions first issued in May last year did not provide for investments in the Reits and InvITs, both newly introduced instruments.

The RBI also prohibited banks from becoming a professional clearing member of commodity derivatives segment of Sebi-recognised exchanges unless it satisfies certain prudential criteria.

These include bank satisfying membership criteria of the exchanges and complying with the regulatory norms laid down by Sebi and the respective stock exchanges and putting in place boardapproved risk control measures, among others.

The RBI also prohibited banks from offering broking services for the commodity derivatives segment of Sebi-recognised stock exchanges, except through a separate subsidiary set-up for the purpose or one of its existing subsidiaries.

Laying down the conditions for allowing broking services, it said there should be effective risk control measures, including prudential norms on risk exposure, in respect of each of its clients, taking into account their net worth and business turnover.

The central bank also barred the subsidiary from undertaking proprietary positions in commodity derivatives.

The amendments also remove references to corporate debt restructuring and strategic debt restructuring in the earlier master directions.