The Reserve Bank of India (RBI) has issued a draft circular proposing limits on banks’ exposure to capital markets and acquisition finance as they carry higher risks.

Under the draft norms, the aggregate capital market exposure of banks should not exceed 40% of their tier 1 capital as on 31 March of the previous financial year.

A banks’ total direct investments in capital markets and acquisition finance must not exceed 20% of their tier 1 capital.