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For the T+1 settlement, RBI revised banks' capital market exposure norms

Published on May 06, 2024
Current Context: The Reserve Bank of India (RBI) made some changes on May 3, 2024, to the rules for banks when they are involved in stock market transactions. These changes are related to the T+1 settlement system, which means the transaction is settled on the next day.
For the T+1 settlement, RBI revised banks' capital market exposure norms
  • Here’s what the new rules say:
    • Banks can only risk up to 30% of the money they are moving around in the stock market in a day.
    • This 30% limit is based on the possibility that stock prices could fall by 20% in a day, with an extra 10% buffer just in case.
    • Banks can only promise to pay money (issue IPCs) if they have a right to the stocks that are being bought or sold.
    • If a transaction is pre-funded, which means the money is already available, then the bank doesn’t need to have a right to the stocks.
    • If a bank has paid a margin in cash, then its exposure is reduced by the amount of the margin paid.
    • If any exposure remains at the end of the day, the bank needs to have enough capital to cover it.

Question:

Q.1 According to the new rules, what is the maximum risk banks can take in the stock market in a day?
a. 10%
b. 30%
c. 20%
d. 40%
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