The RBI, in its revised guidelines, has capped banks' exposure to capital markets at 40 per cent of net worth against 5 per cent of total advances earlier.

The bank's capital market exposure as of March 2007 at Rs 34,100 crore (Rs 341 billion) was 54.3 per cent of its net worth, on a non-consolidated basis.

The bank could find it difficult to get other regulatory approvals if the RBI does not accept its proposal or it is not able to meet the norms over the specified period, it said in the prospectus filed with the US Securities and Exchange Commission for its $600 million American Depository Securities issue.

The capital market exposure norms, effective April 2007, limit a bank's exposure to 40 per cent of its net worth, both on a consolidated and a non-consolidated basis.

The RBI had also added other components to be included while computing bank's exposure to the sensitive sector. The bank's consolidated exposure, including the portfolio of its subsidiary HDFC Securities, is estimated to be slightly higher than the exposure on a non-consolidated basis.

HDFC Bank said the RBI had not indicated yet whether it would be granted permission to bring its exposure within the permitted ceiling by the year-end. HDFC Bank's exposure includes investments in equity shares, loans to share brokers and financial guarantees issued to stock exchanges on behalf of share brokers.

Before the new norms came into effect, the bank's exposure to capital markets stood at Rs 15,600 crore (Rs 156 billion) on a non-consolidated basis on March 31, 2007.

This formed 4.4 per cent of the bank's advances, falling within the earlier ceiling of 5 per cent of advances. Also on a consolidated basis, however, the total exposure to the sensitive sector then stood at Rs 15,700 crore (Rs 157 billion), accounting for 2.1 per cent of total assets. This exceeded the RBI ceiling of 2 per cent of total assets.

The central bank had doubled the provisioning on standard loans given to capital market players to 2 per cent from 1 per cent in its quarterly monetary policy review in January to curb the flow of funds to the sector.