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RBI may cut down group exposure limit for banks

The Reserve Bank of India has plans to reduce exposure limits of banks. The measure will mean that credit facilities extended to any particular group will have to be within 25% of the bank’s capital. At present, this limit is capped at 40%. RBI believes this will reduce the systemic risk posed by lending too much to any single business house as it would act as a protection against banks facing financial trouble in the event of borrowers being unable to repay their loans or collapsing. RBI has revealed its plans in its annual report. The central bank said it is proposed to review the exposure norms in 2014-15, to gradually align them with the revised global standards. Regulators around the world are adopting group exposure norms proposed by the Basel Committee after the credit crisis exposed the fault lines in the financial system. India is also gradually shifting to global best practices.

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