The Reserve Bank of India (RBI) is likely to turn down a fresh request from banks to increase the exposure limit to a single corporate group. Banks led by State Bank of India (SBI) had approached RBI to relax group exposure norms for infrastructure sectors, at least for corporate houses that enjoy a high level of credibility.
The issue was raised by representatives of some large banks during a meeting with RBI officials last week, where the regulator did not provide any indication of whether the demand would be accepted. It, however, prodded banks to step up lending to infrastructure sectors such as roads, ports, power and telecommunications.
“RBI wants banks to lend more in the infrastructure sector. However, most of the banks are finding their group exposure for big corporate houses involved in core sector projects are almost touching the limit. So, there is a request to give some leeway for reputed groups on a case-to-case basis,” said a source privy to the discussion.
But, RBI told banks to consider if such huge exposure to one group of borrowers would be prudent. Sources indicated the regulator was of the opinion that the existing limit was, in any case, higher than what was prescribed globally.
“RBI acknowledges that some of the banks are reaching the limit for certain borrower groups. But the regulator feels Indian banks’ exposure limit is already very high. Internationally, the exposure limit includes individuals and groups and is around 15-25 per cent,” sources told Business Standard.
In the past, when banks had raised the issue with the central bank, a demand also pushed by the finance ministry, they had asked for an overall relaxation in the group exposure limit, fixed at 40 per cent of the bank’s capital fund; for infrastructure groups, it is 50 per cent. This time, in the wake of their experience in lending to large corporate houses which are large infrastructure sector developers, the demand is confined to select groups. Single-company exposure is capped at 15 per cent, while for infrastructure companies, it is limited to 20 per cent.
Only under exceptional circumstances are banks allowed to exceed both single company and group exposure limits, by an additional five per cent. But, board approval is required.
Bankers also urged RBI to revisit the definition of group exposure in the meeting, called by the regulator to discuss the problems banks are facing in lending to infrastructure projects.
“In some cases, the definition of group exposure needs to be re-examined. Even if the corporate is not availing the disbursement, but has been sanctioned by the bank, it is included in the exposure limit,” the source said.
In addition, the bank’s rating is getting affected, as some of the projects are taking a longer time to be operational than what is anticipated. RBI guidelines mandate banks to treat an asset as unsecured, unless an asset has been created.