What changed
This master circular consolidates all prior instructions on exposure norms for financial institutions up to June 30, 2013, replacing the July 2012 circular. It updates definitions, exposure ceilings, and prudential guidelines for single/group borrowers, bridge loans, working capital, NBFC lending, and venture capital investments. The refinancing institutions' core refinance portfolios remain exempt from these norms, but they are advised to set their own board-approved limits.
What it means for you
For banks and FIs, this circular reinforces concentration risk management by capping exposures to individual and group borrowers. It clarifies that refinancing institutions like NABARD, NHB, and SIDBI must still prudently manage credit risk, even though their refinance operations are exempt. Lenders need to align their credit policies with these updated ceilings and ensure board-level monitoring of any excess exposures.
What you must do
- Review and update internal credit exposure policies to align with RBI's single borrower (15% of capital funds) and group borrower (40%) limits.
- Ensure refinance portfolios of NABARD, NHB, and SIDBI are documented as exempt, but establish board-approved internal limits for other exposures.
- Monitor and report any excess exposures to the Board, with a plan to rectify within one year as per initial 1997 directive.
- Incorporate definitions from Annex 5 (infrastructure lending) and Annex 3 (venture capital) into credit risk assessment frameworks.
Who it affects
All-India term-lending institutions (Exim Bank, NABARD, NHB, SIDBI), Banks with exposure to these FIs or their guaranteed bonds, Risk management and credit departments of financial institutions, Board of Directors of FIs overseeing compliance
Are refinance portfolios of NABARD, NHB, and SIDBI subject to these exposure norms?
No, refinance operations are exempt from these norms. However, these institutions are advised to set their own board-approved credit exposure limits for prudential risk management.
What are the key exposure ceilings for single and group borrowers?
For individual borrowers, the ceiling is 15% of the FI's capital funds. For group borrowers, it is 40% of capital funds. These limits aim to prevent concentration risk.
What should FIs do if they have existing exposures exceeding the prescribed limits?
FIs must report such cases to their Board of Directors and take steps to rectify the excess within one year from the date of the initial circular (June 28, 1997).