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Public Issue of Shares and Debentures - Underwriting by Merchant Banking
Subsidiaries of Commercial Banks
DBOD.
No. FSC. BC. 66 - 24.01.002 - dated 31st January 2003
Please
refer to our circular DBOD.No.FSC.BC.26/ C.469-89 dated September 29, 1989,
wherein banks/ subsidiaries were advised that while taking up underwriting
commitments, stand-by facilities and other similar commitments, they should
ensure that
(a)
the funded and non-funded commitments, including investments and
devolvements under underwriting and other commitments like stand-by facilities,
etc., relating to a single legal person or entity, do not exceed 25% of the net
owned funds of the subsidiary (which was subsequently reduced to 15%, vide
Circular DBOD. No. BP.BC.110/ 21.04.048/2000-01 dated May 2, 2001) and
(b)
the commitments under a single underwriting obligation should not exceed
15% of an issue.
2.
We had recently reviewed the above ceilings with particular reference to
the merchant banking subsidiaries set up by banks vis-a-vis their underwriting
commitments in the light of the following:
(i)
merchant banking companies including the subsidiaries set up by
commercial banks are currently regulated by SEBI.
(ii)
SEBI has permitted merchant banking companies to take up underwriting
commitments upto 20 times their net worth and
(iii)
the book-building route for underwriting being generally adopted
currently in the case of large issues, does not lead to major devolvements.
Based
on the review and with a view to providing a level playing field to the merchant
banking subsidiaries of banks, it has now been decided that in partial
modification of the above referred circular, the existing ceiling on
underwriting commitments prescribed therein would not be applicable to merchant
banking subsidiaries of banks, with immediate effect. The merchant banking
subsidiaries of banks regulated by SEBI would, consequently, be governed by the
norms on the various aspects of the underwriting exercise taken up by them.
3.
The prudential exposure ceiling on underwriting and similar commitments
of banks, however, remain unchanged and they shall be continued to be reckoned
within the norms prescribed by RBI earlier on overall single borrower/ issue
size limits from time to time.
4.
Banks should also ensure continued viability of their merchant banking
subsidiaries through periodic reviews of their performance. Our prudential norms
on capital market exposure, asset-liability management, allocation of additional
capital for risk-weighted assets of the subsidiaries will also continue to
apply.
5.
Please acknowledge receipt.
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