What changed
This master circular updates the previous July 2009 circular, consolidating all instructions on exposure norms for financial institutions up to June 30, 2010. It includes revised definitions for capital funds, infrastructure lending, and group borrowers, and clarifies that refinancing portfolios of NABARD, NHB, and SIDBI are exempt from these norms, though boards are advised to set their own limits.
What it means for you
FIs (Exim Bank, NABARD, NHB, SIDBI) must ensure their credit exposure to single borrowers does not exceed 15% of capital funds, and to group borrowers 40%, with possible higher limits for infrastructure projects (20% single) subject to board approval. Refinancing institutions need board-approved internal limits for their refinance portfolios. Existing excess exposures as of June 28, 1997 required board notification and rectification within one year.
What you must do
- Review and align your institution's credit exposure limits with the 15% single and 40% group borrower caps relative to capital funds.
- For infrastructure lending, ensure exposures up to 20% (single) are properly documented and approved.
- If your institution is a refinancing agency (NABARD, NHB, SIDBI), get board approval for internal exposure limits on refinance portfolios.
- Report any existing excess exposures (as of June 28, 1997) to the board and take corrective steps within one year from that date.
- Update internal policies to reflect the consolidated definitions for capital funds, infrastructure, and group borrowers.
Who it affects
All-India term-lending institutions (Exim Bank, NABARD, NHB, SIDBI), Banks and financial institutions with exposure to these FIs, Borrowers (single and group) seeking credit from these institutions
What is the exposure limit for a single borrower under this master circular?
The limit is 15% of the institution's capital funds. For infrastructure projects, it can go up to 20% with board approval.
Are refinancing institutions like NABARD and NHB subject to these exposure norms?
Their refinance portfolio is exempt from these norms, but they are advised to set their own board-approved limits for prudential risk management.
What should we do if our current exposure exceeds the prescribed limits?
You must report the excess to your board of directors and take steps to rectify it within one year from the date of the first circular (June 28, 1997).