RBI rejects more equity exposure

The banking regulator has rejected proposals by four banks - Bank of India, IndusInd Bank, Kotak Mahindra Bank and HDFC Bank - to increase their capital market exposure beyond the regulatory cap of 40 per cent of net worth on grounds of excessive market volatility. The RBI has the discretion to allow higher capital market exposure to banks with sound internal controls and robust risk management systems, but the banking regulator decided against exercising it. HDFC Bank had a capital market exposure of 70.58 per cent of its net worth at the end of November 2007. This was before the RBI changed the norms and capped the exposure at 40 per cent of net worth. The exposures of the other three banks were within the regulatory ceiling.