OVERALL EXPOSURE LIMITS
As prudential measure aimed at better risk management a avoidance of concentration of credit risks, RBI has advised the banks to fix limits on their expose to specific industry or sectors and has prescribed regulatory limits on banks’ exposure to individual and group borrowers India.
- The main objective of setting up the exposure limits is to achieve a well-diversified portfolio across asset classes, borrower group geographic, demographic, and economic sectors.
- Bank exposures are to be maintained within the RBI’s guidelines and internal guidelines on prudential exposure norms in respect of individual companies, industry / sectors, and promoter group
Exposure = fund-based Advances + Non-fund-based advances
|For Single borrower||20% of the tier 1 capital fund of the bank|
|For group borrower||25% of the tier 1 capital fund of the bank (earlier it was 40%)
Note – 5% extra for group borrowers 25% à 30% upto 30-06-2021
|If approved by Board of directors of the bank 5% extra exposure may be allowed in all the cases|
Urban Cooperative Banks – UCBs shall have at least 50 per cent of their aggregate loans and advances comprising loans of not more than ₹25 lakh or 0.2% of their tier I capital, whichever is higher, subject to a maximum of Rs.1 crore, per borrower/party.
Bank should make appropriate disclosures in the note on account to the annual financial statements in respect of the exposures when the bank had exceeded the Prudential exposure limits during the year
- Exposure to the Government of India and state governments which are eligible for zero percent risk weight.
- Advances against bank’s own deposits (secured and unsecured).
- Exposures to Reserve Bank of India
- Exposures where the principal and interest are fully guaranteed by Government of India
- Exposure to borrowers to whom limits are authorized for food credit.
- Deposits maintained with NABARD on account of shortfall in achievement of targets for priority sector lending.
Reporting to RBI: if exposure to borrowers is more than 10% of capital fund of the bank is to be reported to the RBI.
CAPITAL MARKET EXPOSURE
| Aggregate Capital market exposure
· Restricted to 40% (Both indirect and direct) of net worth of the bank as on March 31 of previous year both on Solo and Consolidated basis.
· Within the overall 40%, direct exposure by investment in shares, debentures/ onwards not to exceed 20% of net worth.
|Advance against Shares
· To individuals limited to Rs. 10 lacs against shares held in physical form (margin 50%) and Rs.20 lac in demat accounts (margin 25%) from Banking Sector.
· In case of ESOP – Employee Stock option plan (margin 10%)
Restricted to 90% or Rs 10 Lacs / Individual from the banking sector whichever is lower
Banks cannot allow loans to their employee others for purchase their own shares. This as per Sec. 20 Banking Regulation Act.
As per Sec. 19 of Banking Regulation Act, the banks cannot hold more than 30% of their paid-up capital + reserves or 30% of paid up capital of the company whichever is lower), as pledge, mortgagee or absolute owner.