RBI lowers banks’ exposure limit to group entities
Reuters | Photo Credit: Reuters

The Reserve Bank of India on Thursday capped exposure to a single entity by a bank at 20% of the lender’s capital base and to 25% in case of connected group entities in a bid to cut bad loans. 

The central bank, in a circular to lenders, mandated all banks to classify and report the sum of all their respective exposures of 10% or above their capital base as “large exposures”.    

The rules will be applicable from 1 April 2019. 

The RBI at present allows banks to lend up to 15% of their capital base to a single entity and up to 40% to a group.

Thursday’s rules follow a 4 October statement in which the central bank had indicated that new rules regarding exposure limits will be notified after October. 

The RBI has also put restrictions on the exposure limits for non-banking finance companies (NBFCs), whose large exposures to single entities will now be restricted to 15% of their capital base and 25% for connected group entities%.

“However, based on the risk perception, more stringent exposure limits in respect of certain categories of NBFCs may be considered,” the central bank said.

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