The 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), which will come into effect from April 2024. India has five AIFIs regulated by the central bank, 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).
As the Indian economy grows, AIFIs are increasingly being seen as key institutions to promote the flow of direct or indirect credit to the economic sectors they cater to. It has been decided, therefore, to extend the Basel III Capital framework to the AIFIs, RBI said. In exercise of the powers conferred by Section 45L of the Reserve Bank of India Act, 1934, the Reserve Bank of India (hereinafter called the Reserve Bank) being satisfied that it is necessary and expedient in the public interest and in the interest of financial sector policy so to do, hereby, issues the Directions.
AIFIs will be required to maintain a minimum total capital of 9% by April 2024, wherein minimum tier-I capital will need to be at 7% and common equity tier-I (CET-1) capital at 5.5%. For NHB, the implementation date will be July 2024, given that its accounting year is July–June. The central bank has also limited AIFIs’ investments in capital instruments of banking, financial, and insurance entities at 10% 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. Further, AIFIs’ equity investment in a single entity cannot exceed 49% of the equity of the investee. While AIFIs can hold this entire 49% 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.
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