Mint Road fiat asks banks to conform to exposure norms

The Reserve Bank of India (RBI) has directed banks to strictly adhere to the individual and group borrower exposure norms. The apex bank has categorically stated that it would no longer entertain banks pleas for forbearance on breach of the exposure ceilings.

Some domestic banks and most of the foreign banks have been seeking clemency after breaching exposure limits. The RBI routinely accedes to such requests, banking sources said.

The exposure ceiling is now fixed at 25 per cent for individual borrowers and 55 per cent for group borrowers. This includes additional 5 per cent limit for individual borrowers and 10 per cent for group borrowers for infrastructure lending, subject to the approval of banks' boards.

Sources said that when RBI relaxed the exposure norms in June last year, it had hoped that it would no longer have to use its discretionary powers. But requests from banks continued to come in prompting the RBI to issue the diktat.

After the RBI order, a lot of foreign banks have brought in additional capital. Singapore-based DBS Holdings infused $75 million in DBS Bank's Indian operations to enable it to take "bigger domestic exposures".

It had earlier brought in $30 million in March 2004. Standard Chartered Bank last month injected $25 million capital in its Indian operations. HSBC has increased its capital base by $150 million, partly through retention of profits.

Bank of America earlier this week announced it has provided $150 million of additional capital for its Indian operations "to meet RBI's norms on single and group borrower exposure limits".

The exposure limit includes funded as well as non-funded exposure, including collaterals and guarantees. This is part of the prudential standards imposed on banks to contain risks leading to financial stability.

Banks breaching exposure limits either have to bring in additional capital or pare their exposure to the ceiling prescribed.

Credit facilities to weak/ sick industrial units under rehabilitation packages, principal and interest fully guaranteed by the central government and loans and advances against the security of bank's own term deposits are exempted from the exposure limits.