An Indian commercial bank (hence forth ’a bank’) is allowed by Section 25 of the Banking Regulations Act 1949 to invest in foreign-currency debt instruments like offshore bonds in Chinese yuan (CNH) or US dollar (USD) up to 25 per cent of its demand and time liabilities. The Committee on Capital Account Convertibility constituted by the Reserve Bank of India (RBI) in 2000 recommended neither any change in the above restriction nor any new restriction in an offshore foreign-currency bond issued by another bank or financial institution in India up to 10 per cent of the sum of its Tier I capital and Tier II capital. Furthermore, within the above limit, as cross-holding, apart from any foreign-currency bond issued by another Indian bank not as part of Tier I or Tier II capital, a bank can invest in Tier II bonds issued in a foreign currency by the head office of a foreign bank incorporated in India and an innovative perpetual foreign-currency debt instrument issued by a domestic bank or a non-bank financial instrument within its Tier I capital.
Keywords
- Credit Risk
- None None
- Market Risk
- Capital Charge
- Asset Liability Management
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