What changed
The exposure limits for standalone Primary Dealers were increased: single borrower limit went from 15% to 25% of Net Owned Funds (NOF), and group borrower limit from 25% to 40% of NOF. This revision was made to facilitate better market-making in corporate bonds.
What it means for you
Standalone PDs now have greater headroom to lend or invest in single and group borrowers, which should boost their ability to underwrite and trade corporate bonds. Banks that own or deal with PDs may see increased bond market liquidity and counterparty exposure, requiring updated risk assessments.
What you must do
- Update internal exposure monitoring systems for standalone PDs to reflect the new 25% and 40% NOF limits.
- Review credit and market risk policies for transactions with standalone PDs, given their expanded borrowing capacity.
- Communicate the revised limits to relevant treasury and risk management teams for compliance.
Who it affects
Standalone Primary Dealers, Banks with exposure to standalone PDs, Corporate bond market participants
What is the effective date of these new exposure limits?
The circular states the guidelines are effective from the date of the circular, which is November 11, 2010.
Why did RBI increase these exposure limits?
RBI reviewed the matter to further facilitate market-making activities of standalone PDs in corporate bonds, hence the enhancement.
Do these limits apply to all Primary Dealers?
The circular specifically addresses standalone Primary Dealers, not bank-owned PDs, as per the reference to earlier instructions.