The Reserve Bank of India has come out with final guidelines for banks’ exposure to large companies stipulating that a lender’s total advances to a single company cannot be higher than 20 per cent of its capital base and 25 per cent in the case of a group of connected parties or companies. The new norms will be implemented by March 31, 2019.
“The sum of all the exposure values of a bank to a single counter-party must not be higher than 20 per cent of the bank’s available eligible capital base at all times,” RBI said in the final guidelines on Large Exposure Framework (LEF). However, in exceptional cases, board of banks may allow an additional 5 per cent exposure of the bank’s available eligible capital base. The existing limit for a company is 15 per cent and 40 per cent for the group.
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“The sum of all the exposure values of a bank to a group of connected counter-parties must not be higher than 25 per cent of the bank’s available eligible capital base at all times,” the RBI said, adding banks must lay down a board approved policy in this regard. The framework said any breach of the limits will be under exceptional conditions only and shall be reported to RBI immediately and rectified at the earliest but not later than a period of 30 days from the date of the breach.
The guidelines said a bank shall comply with the these norms at two levels: the consolidated level and solo level. The application of LEF at the consolidated level means a bank must consider exposures of all the banking group entities under regulatory scope, to counter-parties and compare the aggregate of those exposures with the banking group’s eligible consolidated capital base.