What changed
RBI issued a master circular updating all exposure norms instructions issued up to June 30, 2007, replacing the earlier October 2006 circular. The key limits remain unchanged: single borrower exposure capped at 15% of capital funds (extendable to 20% for infrastructure projects) and group borrower exposure at 40% of capital funds (extendable to 50% for infrastructure projects).
What it means for you
Banks must continue to adhere to these prudential exposure ceilings to avoid concentration risk. The infrastructure relaxation allows banks to lend up to 20% to a single borrower and up to 50% to a group borrower for infrastructure projects, supporting sector growth. Compliance with these limits is critical for regulatory reporting and capital adequacy.
What you must do
- Review and update internal exposure limits to ensure single borrower exposure does not exceed 15% of capital funds (20% for infrastructure).
- Monitor group borrower exposure to stay within the 40% ceiling of capital funds (50% for infrastructure projects).
- Align credit risk management policies with the updated master circular and maintain documentation for regulatory audits.
Who it affects
All scheduled commercial banks (excluding RRBs), Credit risk management teams, Loan origination and monitoring departments
What is the single borrower exposure limit under this circular?
The limit is 15% of the bank's capital funds (Tier I + Tier II). It can go up to 20% if the additional exposure is for infrastructure projects.
Does this circular change the group borrower exposure limit?
No, the group borrower limit remains at 40% of capital funds, but can go up to 50% for infrastructure projects, as per the earlier circular. This master circular only consolidates existing instructions.