The Reserve Bank of India (RBI) on May 03, 2024, issued a notification regarding the Banks' Exposure to Capital Market - Issue of Irrevocable Payment Commitments (IPCs).
The circular DBOD.Dir.BC.68/13.03.00/2011-12 dated December 27, 2011, concerning "Banks' Exposure to Capital Market - Issue of Irrevocable Payment Commitments (IPCs)" along with the clarification dated September 11, 2012, on the applicability of Irrevocable Payment Commitments, remains valid for the T+2 settlement cycle.
However, due to the transition from T+2 to T+1 rolling settlement introduced by Stock Exchanges, the guidelines for the issuance of IPCs by custodian banks have been reviewed. Under the T+1 settlement cycle, the following instructions shall apply:
•Only custodian banks with a clause in the Agreement with clients granting the banks an inalienable right over the securities to be received as payout in any settlement will be permitted to issue IPCs. This clause is not mandatory if transactions are pre-funded.
•The maximum intraday risk for custodian banks issuing IPCs will be reckoned as 30 percent of the settlement amount, based on the assumption of a 20 percent downward price movement of equities on T+1, with an additional 10 percent margin for further downward movement.
•Intraday exposure under the T+1 settlement cycle shall normally be for intraday, with any outstanding exposure at the end of T+1 requiring capital maintenance as per the Master Circular – Basel III Capital Regulations.
•Banks' underlying exposures to their counterparties, arising from intraday Capital Market Exposure, will be subject to limits prescribed under the Large Exposure Framework.
These revised guidelines are specific to the T+1 settlement cycle, while the existing instructions under the mentioned circular remain applicable for the T+2 settlement cycle.
[Notification No. RBI/2024-25/33 DOR.CRE.REC.22/21.03.054/2024-25]
