By Shilpa Samant
Copyright indiatimes
New Delhi: The government is in talks with the Reserve Bank of India on easing regulations to let banks take larger exposures to big corporates as part of a wider initiative to push infrastructure finance, people familiar with the developments said. Under the existing norms, loans become costlier in case the overall banking exposure to a corporate exceeds ₹10,000 crore.”The government aims to bring down the regulations impending infrastructure financing without compromising on any concentration risks,” said an official requesting anonymity.One of the suggestions is to increase the ₹10,000-crore banking exposure limit for a single borrower, which hasn’t been changed since 2016, he said.Other options being discussed include redefining specified borrowers in terms of disbursed amount and not loan sanctions, and lowering provisioning and risk weights.Live Events”It is also being deliberated if the extra provisioning requirement can be rationalised,” the official said.These suggestions came up in a meeting held earlier this month by the finance ministry to discuss issues related to financing in the infrastructure sector, he said.ET reported last week that India is readying a big-ticket infrastructure push, focusing on large projects with long gestation periods.The meeting mentioned above was attended by senior management of major public sector banks, private sector banks, development financial institutions and NBFC-IFCs.An email sent to the RBI did not receive any response.Improved health of the banking sector can allow the proposed relaxation, people cited above said.As per the latest Financial Stability Report of the RBI, the asset quality of commercial banks improved with gross non-performing assets (NPAs) and net NPAs declining to multi-decadal lows of 2.3% and 0.5%, respectively in FY25.In 2016, after a surge in non-performing loans that had crippled the banking sector, the RBI had put in place new lending guidelines – the Framework for enhancing Credit Supply for Large Borrowers through Market Mechanism.Under these guidelines, any lending, including loan sanctions, to a single borrower above ₹10,000 crore would require banks making additional provisioning of 3%, increasing the cost of such loans.The central bank mandated an “additional risk weight of 75 percentage points over and above the applicable risk weight for the exposure to the specified borrower.”The regulator had noted that the absence of an overarching ceiling on total bank borrowing by a corporate entity from the banking system had resulted in banks collectively having very high exposures to some of the large corporates in India.”The framework is proposed with a view to mitigating the risk posed to the banking system on account of large aggregate lending to a single corporate,” it had then stated.In 2020, on account of the Covid-19 pandemic, the RBI had decided to increase a bank’s exposure to a group of connected counterparties from 25% to 30% of the eligible capital base of the bank.”Many corporates are finding it difficult to raise funds from the capital market and are predominantly dependent on funding from banks. Therefore, with a view to facilitate greater flow of resources to corporates, it has been decided, as a one-time measure,” the RBI had stated then.Add as a Reliable and Trusted News Source Add Now!
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