Kolkata: The Reserve Bank of India said that all existing related party transactions that are non-compliant with the revised norms can continue till their maturity while it clarified that equity investments are excluded from the scope of the new directions.
"All existing transactions not complying with the regulatory prohibitions have been permitted to be continued till there is any enhancement, renewal, re-pricing, or any change in the terms and conditions of such transactions/facilities," the central bank said Monday, responding to the feedback it received from stakeholders on the draft rules on related party transactions issued in October last year.
The RBI proposed a unified, principle-based framework to regulate lending by banks and other regulated entities to their related parties, to address the potential conflicts of interest and corporate governance lapses.
RBI excluded equity investments from the scope of it while investments in debt instruments of related parties are covered.
It also made disclosures easy saying that regulated entities would be required to disclose aggregate amounts of contracts and arrangements awarded to their related parties. But it did not accept the proposals of having a materiality threshold in respect of contracts and arrangements arguing that the possibility of granting undue benefits to related parties through contracts is as much as through loans.
The regulator made changes in the related party definition. RBI accepted a proposal to remove the nominal monetary threshold of Rs 5 crore from the criteria of shareholding of a related person in an entity for classifying the entity as a related party.
The related party definition has also been modified to exclude nominee directors of other banks, appointed by statutory bodies. However, it did not accept the suggestion for exclusion of nominee directors and independent directors of its own bank since such directors may exercise significant influence in the decision-making process.
Meanwhile, RBI said that statutory restrictions would be applicable to foreign banks' global head office or board in case they have branches in India since this comes under the Banking regulation Act.
Agricultural and allied activity loans granted to the chairman, managing director or other directors of rural cooperative banks would also not be excluded from restrictions.
Any non-compliance with and circumvention of these directions will result in supervisory and enforcement actions including monetary penalty, the banking regulator said. Non-compliance may also attract forensic audits and business restrictions.
"All existing transactions not complying with the regulatory prohibitions have been permitted to be continued till there is any enhancement, renewal, re-pricing, or any change in the terms and conditions of such transactions/facilities," the central bank said Monday, responding to the feedback it received from stakeholders on the draft rules on related party transactions issued in October last year.
The RBI proposed a unified, principle-based framework to regulate lending by banks and other regulated entities to their related parties, to address the potential conflicts of interest and corporate governance lapses.
RBI excluded equity investments from the scope of it while investments in debt instruments of related parties are covered.
It also made disclosures easy saying that regulated entities would be required to disclose aggregate amounts of contracts and arrangements awarded to their related parties. But it did not accept the proposals of having a materiality threshold in respect of contracts and arrangements arguing that the possibility of granting undue benefits to related parties through contracts is as much as through loans.
The regulator made changes in the related party definition. RBI accepted a proposal to remove the nominal monetary threshold of Rs 5 crore from the criteria of shareholding of a related person in an entity for classifying the entity as a related party.
The related party definition has also been modified to exclude nominee directors of other banks, appointed by statutory bodies. However, it did not accept the suggestion for exclusion of nominee directors and independent directors of its own bank since such directors may exercise significant influence in the decision-making process.
Meanwhile, RBI said that statutory restrictions would be applicable to foreign banks' global head office or board in case they have branches in India since this comes under the Banking regulation Act.
Agricultural and allied activity loans granted to the chairman, managing director or other directors of rural cooperative banks would also not be excluded from restrictions.
Any non-compliance with and circumvention of these directions will result in supervisory and enforcement actions including monetary penalty, the banking regulator said. Non-compliance may also attract forensic audits and business restrictions.
