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RBI proposes to limit banks’ exposure to corporates

The Reserve Bank of India is proposing 25% of the capital of a bank as the limit of the bank’s exposure to corporate borrowwals. At present the limit is at 55%. RBI said in a draft paper that “The sum of all the exposure values of a bank to a single counterpart or to a group of connected counterparties must not be higher than 25% of the bank’s available eligible capital base at all times.” The paper added that the proposed ‘Large Exposure’ (LE) framework will be fully applicable from 1 January 2019. At the same time the central bank sought stakeholders’ views on the proposal. The Basel Committee on Banking Supervision (BCBS) feels there may be a maximum limit to large exposures in relation to the banks’ capital. The gross NPAs of public sector banks are Rs 2,60,531 crore as on December 2014, up from Rs 71,080 crore in 2011. The paper noted that a bank’s exposure to its counterparties may result in concentration of its assets to a single counterparty or a group of connected counterparties. Internationally, concentration risk has been addressed by prescribing regulatory and statutory limits on exposures towards counterparties and various sectors of the economy, it added.

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