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Prudential Credit Exposure Limits- RBI Guidelines (June 2004)

RBI has asked banks to strictly comply with the credit exposure ceiling of 15 per cent and 40 per cent of capital funds to single and group borrower, respectively. RBI has decided to discontinue the practice of giving case-by-case approval particularly in the light of the liberalised access of borrowers to ECBs and their ability to raise resources through capital/debt market.

Accordingly banks are advised that: -

1. The single /group borrower prudential exposure ceilings i.e 15 per cent and 40 per cent respectively and the additional limits of 5 per cent and 10 per cent for exposure to infrastructure should be strictly adhered to by banks.

2. Banks may, in exceptional circumstances, with the approval of their Boards, consider enhancement of the exposure to a borrower up to a further 5 per cent of capital funds (i.e 20 per cent of capital funds for single borrower and 45 per cent of capital funds for group borrowers) subject to the borrower consenting to the banks making appropriate disclosures in their Annual Reports.

3. It is clarified that in respect of exposure to infrastructure, banks could consider additional sanctions upto 5 per cent and 10 per cent as indicated at (i) over & above the limits of 20 per cent and 45 per cent respectively.

4. While computing the extent of exposures to a borrower/borrower group for assessing compliance vis-a-vis the single borrower limit/group borrower limit, exposures where principal and interest are fully guaranteed by the Government of India may be excluded.

5. The bank should make appropriate disclosures in the ‘Notes on account’ to the annual financial statements in respect of the exposures where the bank had exceeded the prudential exposure limits during the year.

6. Banks should phase out by March 31, 2005 exposures in excess of single/group borrower limits not in conformity with above, either by increasing capital funds or reducing exposures.

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