2. A few banks represented that debit balances in the Head Office account due to placements with the Head Office/overseas branches may happen as a part of normal banking business and complete denial of such exposure may not be practical and consistent with the principle of non-disruptive regulation. Accordingly, the matter has been examined and it is advised that:
If net overseas placements with Head Office/other overseas branches/other group entities (Placement minus borrowings, excluding Head Office borrowings for Tier I and II capital purposes) exceed 10% of the banks minimum CRAR requirement, the amount in excess of this limit would be deducted from Tier I capital.
For the purpose of the above prudential cap, the net overseas placement would be the higher of the overseas placements as on date and the average daily outstanding over year to date.
The overall cap on such placements/investments will continue to be guided by the present regulatory and statutory restrictions i.e. net open position limit and the gap limits approved by the Reserve Bank of India, and Section 25 of the Banking Regulation Act, 1949. All such transactions should also be in conformity with other FEMA guidelines.
3. These guidelines will be effective from September 30, 2012.