June 21, 2004 RBI/2004/ 260
DBOD.NO.BP.BC.
100/ 21.03.054/2003-04 All scheduled commercial banks
(excluding
RRBs) Dear Sir, Annual Policy Statement for the year 2004-05 -
Prudential Credit Exposure Limits by Banks Please refer
to our Circular No. DBOD.BP.BC.116/21.04.48/2001-02 dated May 2, 2001 and Circular
No. DBOD.BP.BC.67/21.04.48/2002-03
dated February 4. 2003, wherein it was advised that banks are allowed to assume
single or group borrower credit exposure up to 15 and 40 per cent of capital funds
(i.e., Tier I & Tier II Capital) respectively, with an additional allowance
of 5 and 10 per cent of capital funds for infrastructure sector exposure. Banks
that had difficulty in complying with the prudential credit exposure limits have
approached RBI for approvals, which were considered, on a case-by-case basis. 2.
As indicated in paragraph 117 of the annual policy Statement
for the year 2004-2005 enclosed to the Governor's letter No.MPD.BC.249 /07.01.279
/ 2003-2004 dated May 18, 2004, (copy of the paragraph enclosed)
it has now been 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: - - 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.
- 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.
- 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.
- 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.
- 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.
- 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.
Yours
faithfully, Sd/- (C
R Muralidharan)
Chief General Manager-in-Charge
Extract
of Annual Policy Statement for the year 2004- 05 ' Prudential
Credit Exposure Limits 117. At present, banks are
allowed to assume single or group borrower credit exposure up to 15 and 40 per
cent of capital funds (i.e., Tier I & Tier II Capital) respectively, with
an additional allowance of 5 and 10 per cent of capital funds for infrastructure
sector exposure. However, banks having difficulty in complying with the prudential
credit exposure limits can approach RBI for approval, on a case by case basis.
In the light of the liberalised access of borrowers to ECBs and their ability
to raise resources through capital/debt market, it has been decided to discontinue
the practice of giving case-by-case approval. Accordingly, it is proposed that:
- Banks may, in exceptional circumstances, with the approval
of their Boards, consider enhancement of the exposure to the borrower up to a
maximum of further 5 per cent of capital funds, subject to the borrower consenting
to the banks making appropriate disclosures in their Annual Reports. The additional
allowance of 5 and 10 per cent of capital funds for single and group borrowers,
respectively, for the infrastructure exposure would continue.
- Exposures
of banks that are fully guaranteed by the Government of India would be exempt
from the purview of credit exposure norms.
- Banks
would phase out the excess exposures beyond the prescribed limits either by increasing
capital funds or reducing exposures by March 31, 2005 '
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