RBI caps loan exposure limits to corporates, corporate groups

The Reserve Bank of India (RBI) on Thursday capped loan exposure of banks to an corporate entity at 20 per cent and to a group at 25 per cent of the bank's available eligible capital base.

In a notification, the RBI said the sum of all exposure values or loans to a single entity must not be higher than 20 per cent of the bank's available eligible capital base at all times.

"In exceptional cases, board of banks may allow an additional 5 percent exposure of the bank's available eligible capital base. Banks shall lay down a board approved policy in this regard," it said.

In the case of a group of companies, a bank's total exposure must not be higher than 25 per cent of the available eligible capital base at all times.

According to RBI, a bank's exposure includes both on and off-balance sheet exposures included in either the banking or trading book and instruments with counterparty credit risk.

The eligible capital base for this purpose is the effective amount of Tier 1 capital.

According to RBI, any breach of the large exposure limits will be under exceptional conditions only, reported to it immediately and rectified at the earliest but not later than a period of 30 days from the date of the breach.

--IANS

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