Bank of baroda

Regulations relating to Investments and Capital Market Exposure Limits
There are no limits on the amount of investments by banks in non-convertible debt instruments. However, credit exposure
limits specified by the RBI in respect of lending to individual borrowers and borrower groups also apply in respect of
these investments.
Pursuant to the RBI guidelines, the exposure of banks to capital markets by way of investments in shares, convertible
debentures, units of equity-oriented mutual funds and loans to brokers, should not exceed 5.0% of outstanding domestic
advances (excluding inter-bank lending and advances outside India and including commercial paper) at March 31 of the
previous fiscal year and investments in shares, convertible debentures and units of equity-oriented mutual funds should
not exceed 20.0% of the bank’s net worth.
Bank’s investment in the following instruments, which are issued by other banks and are eligible for capital status for the
investee bank should not exceed 10% of the investing bank’s capital funds (Tier I plus Tier II): (a) equity shares; (b)
preference shares eligible for capital status; (c) subordinated debt instruments; (d) hybrid debt capital instruments; and (e)
any other instrument approved as in the nature of capital.
In December 2003, the RBI issued guidelines on investments by banks in non-Statutory Liquidity Ratio securities issued
by companies, banks, financial institutions, central and state government sponsored institutions and special purpose
vehicles. These guidelines apply to primary market subscriptions and secondary market purchases. Pursuant to these
guidelines, banks are prohibited from investing in non-Statutory Liquidity Ratio securities with an original maturity of less
than one year, other than commercial paper and certificates of deposits. Banks are also prohibited from investing in
unrated securities. A bank’s investment in unlisted non-Statutory Liquidity Ratio securities may not exceed 10.0% of its
total investment in non-Statutory Liquidity Ratio securities as at the end of the preceding fiscal year. These guidelines will
not apply to investments in security receipts issued by securitisation or reconstruction companies registered with the RBI
and asset backed securities and mortgage-backed securities with a minimum investment grade credit rating. These
guidelines have been effective from April 1, 2004, with provision for compliance in a phased manner by January 1, 2005.