August 6, 2020 at 12:55 pm
August 6, 2020
All Scheduled Commercial Banks
(Excluding Local Area Banks
and Regional Rural Banks)
Basel III Capital Regulations – Treatment of debt mutual funds/ETFs
Please refer to our circular DBR.No.BP.BC.1/21.06.201/2015-16 dated July 1, 2015, on Basel III capital regulations.
2. In terms of para 8.4.1 of the circular, capital charge for equities is applicable to units of mutual funds. It has now been decided that the banks investing in debt mutual fund/exchange traded fund (ETF) with underlying comprising of (i) Central, State and Foreign Central Governments’ bonds (ii) Bank’s Bonds and (iii) Corporate Bonds (other than Bank Bonds) shall compute capital charge for market risk as under:
a) Investment in debt mutual fund/ETF for which full constituent debt details are available shall attract general market risk charge of 9 per cent, as hitherto. Specific risk capital charge for various kinds of exposures would be applied as detailed below:
b) In case of debt mutual fund/ETF which contains a mix of the above debt instruments, the specific risk capital charge shall be computed based on the lowest rated debt instrument/ instrument attracting the highest specific risk capital charge in the fund.
c) Debt mutual fund/ETF for which constituent debt details are not available, at least as of each month-end, shall continue to be treated on par with equity for computation of capital charge for market risk as prescribed in para 8.4.1 of Master Circular on Basel III Capital Regulations.