Single and Group Borrower Limits*
With a view to achieve a better risk management and avoidance of concentration of credit risk, the RBI from time to time, prescribes, limits on exposure of a bank to individual borrowers and groups of borrowers in India. The Master Circular No. RBI/2015-16/70 DBR.No.Dir.BC.12/13.03.00/2015-16 dated July 1, 2015 on “Exposure Norms”, lays down the ceiling on credit exposure to individual/group borrowers in relation to bank’s capital fund as defined under capital adequacy standards (Tier-I and Tier-II Capital). The ceiling on exposure to individual borrowers is 15 per cent of capital funds and 40 per cent in the case of a borrower group. However, exposure to borrowers belonging to a group may exceed the exposure norms of the 40 per cent of the bank’s capital funds by an additional 10 per cent, provided the additional credit exposure is on account of extension of credit for infrastructure projects. Exposure to single borrower may also exceed by 5 per cent, provided the additional exposure is on account of infrastructure projects. Derivative Products such as Forward Rate Agreements and Interest Rate Swaps are also captured for computing exposure by applying the conversion factors to notional principal amounts. Banks should also include forward contracts in foreign exchange and other derivative products like currency swaps, options, etc., at
their replacement cost value in determining individual / group borrower exposure. The Master Circular on Exposure Norms contains guidelines on calculation of the credit exposure in derivative products.
In addition to the exposure limit as permitted above, banks may, in exceptional circumstances, with the approval of their Boards, consider enhancement of the exposure to a borrower (single as well as group) upto a further 5 per cent of capital funds..
With effect from May 29, 2008, the exposure limit in respect of single borrower has been raised to twenty five per cent of the capital funds, only in respect of Oil Companies who have been issued Oil Bonds (which do not have SLR status) by Government of India. In addition to this, banks may in exceptional circumstances, consider enhancement of the exposure to the Oil Companies up to a further 5 per cent of capital funds.
Such exposures where the bank has exceeded the prudential exposure limit should be appropriately disclosed in the “Notes to Accounts” to the Balance Sheet.