RBI proposes to reduce bank’s exposure in corporate houses

With an aim to reduce risk in banking sector, RBI has proposed to limit exposure of a bank to a business group to up to 25 per cent of its capital, down from the existing 55 per cent. "The Large Exposure (LE) limit in respect of each counterparty and group of connected counterparties, under normal circumstances, will be capped at 20 per cent and 25 per cent, respectively of the eligible capital base," RBI said in a Draft Large Exposures (LE) Framework.

The eligible capital base will be defined as the tier 1 capital of the bank as against capital funds at present, it said. A group of connected large borrowing companies will be identified on the basis of control as well as economic dependence criteria, it said, reports PTI.

While inviting comment from public, it said, the proposed 'Large Exposure' (LE) framework will be fully applicable from March 31, 2019.

The Basel Committee on Banking Supervision (BCBS) too recognised the need for banks to measure and limit the size of large exposures in relation to their capital. The RBI's proposal is in line with BCBS standards (BASEL norms on capital adequacy).

The exposure framework has been released at a time when bad loans or non-performing assets are on the rise. Gross NPAs of PSU banks are Rs 4.7 lakh crore as on March, 2015, up from Rs 71,080 crore in 2011.