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Master Circular - Exposure Norms
DBOD No. Dir. BC. 20-13.03.00-dated 20th August 2002
Please refer to the Master Circular DBOD. No. Dir. BC. 12/ 13.03.00/ 2001 - 02 dated 13th August 2001 consolidating the instructions/ guidelines issued to banks till 30th June 2001 relating to Exposure Norms. The Master Circular has been suitably updated by incorporating the instructions issued up to 30th June 2002 and has been placed on the RBI website (http://www.rbi.org.in).
2. This Master Circular is a compilation of the instructions contained in the circulars issued by RBI on the above subject, which are operational as on the date of this circular.
1. General
As a prudential measure aimed at better risk management and avoidance of concentration of credit risks, the Reserve Bank of India has advised the banks to fix limits on their exposure to specific industry or sectors and has prescribed regulatory limits on banks exposure to individual and group borrowers in India and unsecured guarantees and unsecured advances. In addition, banks are also required to observe certain statutory and regulatory exposure limits in respect of advances against / investments in shares, debentures & bonds.
2. Credit Exposures to Individual/Group Borrowers
2.1 Ceilings
2.1.1 The exposure ceiling should be fixed in relation to bank's capital funds. Internationally, exposure ceilings are computed in relation to total capital as defined under capital adequacy standards (Tier I and Tier II Capital). Taking into account the best international practices, it has been decided to adopt the concept of capital funds as defined under capital adequacy standards for determining exposure ceiling uniformly both by domestic and foreign banks, effective from 31 March 2002. The exposure ceiling limits applicable from April 1, 2002 which is based on the capital funds in India as computed above would be 15 per cent of capital funds in case of single borrower and 40 percent in the case of a borrower group. Exposure to borrowers belonging to a group may exceed the exposure norm of 40 percent of the bank�s capital funds by an additional 10 percent (i.e. up to 50 percent), provided the additional exposure is on account of extension of credit to all infrastructure projects.
The coverage under "infrastructure" would be the same as defined under section 10 (23G) of Income Tax Act, 1961. Accordingly, infrastructure would include sectors, such as power, roads, highways, bridges, ports, airports, rail system, water supply, irrigation, sanitation & sewerage system, telecommunication, housing, industrial park or any other public facility of similar nature as may be notified by CBDT from time to time.
2.1.2 Lending under Consortium Arrangements
The exposure limits will be applicable even in case of lending under consortium arrangements, wherever formalised.
2.2 Exemptions
2.2.1 Rehabilitation of Sick/Weak Industrial Units
The ceilings on single/group exposure limits would not be applicable to existing/ additional credit facilities (including funding of interest and irregularities) granted to weak/sick industrial units under rehabilitation packages.
2.2.2 Food credit
Borrowers to whom limits are allocated directly by the Reserve Bank, for food credit, will be exempt from the ceiling.
2.3 Definitions
2.3.1 Exposure
Exposure shall include credit exposure (funded and non-funded credit limits) and investment exposure (including underwriting and similar commitments) as well as certain types of investments in companies. The sanctioned limits or outstandings, whichever are higher, shall be reckoned for arriving at exposure limit. However, in respect of non-funded credit limits, only 50 percent of such limits or outstandings, whichever is higher, need be taken into account for the purpose. However loans and advances granted against the security of bank�s own term deposits may be excluded from the purview of the exposure ceiling.
(i) In line with international best practices, it has been decided that effective from April 1, 2003, non-fund based exposures should also be reckoned at 100 per cent of the limit or outstandings.
(ii) At present, derivative products such as Forward Rate Agreements (FRAs) and Interest Rate Swaps (IRSs) are also captured for computing exposure by applying the conversion factors to notional principal amounts as per the original exposure method prescribed in Annexures 1 and 2 of our circular MPD.BC. 187/07.01/279/1999-2000 dated July 7, 1999. It has been decided that, effective from April 1, 2003, banks should also include forward con
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