Banking · Concentration Risk Management
Within the framework of the revised Concentration Risk Management directions for commercial banks, which of the following best explains the conceptual distinction and valuation methodology applied to Direct and Indirect Capital Market Exposures (CME)?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1Direct CME exclusively encompasses underwriting commitments and Irrevocable Payment Commitments (IPCs) measured at a 125% risk weight, while Indirect CME includes all investments in critical financial infrastructure such as NABARD and SIDBI.
- 2Direct CME involves outright investments in instruments such as equity shares, REITs, or InvITs measured at cost price, while Indirect CME captures credit exposures where capital market instruments are the primary use of funds or serve as collateral, measured at the higher of the sanctioned limit or the outstanding amount.✓
- 3Direct CME is defined as outright investments in equity shares and REITs measured at their current market value, whereas Indirect CME covers credit exposures where financial instruments act as collateral, measured using the lower of the six-month average price or the previous day's closing price.
- 4Direct CME involves all fund-based credit facilities provided to Capital Market Intermediaries for proprietary trading, while Indirect CME tracks the bank's own portfolio of Sovereign Gold Bonds and Treasury Bills measured at the current market price.
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