RBI/2016-17/50
DBR.BP.BC.No.8/21.01.003/2016-17
August
25, 2016
All Scheduled Commercial Banks
(excluding RRBs)
Guidelines on Enhancing Credit
Supply for
Large Borrowers through Market Mechanism
Please refer to the Discussion Paper on the captioned subject
issued on May 12, 2016 for comments of the stakeholders. The Discussion
Paper proposed a framework for addressing the concentration risk of the
banking system arising from its exposures towards a single counterparty.
2. The comments received from
stakeholders have been examined and taking into account the views of the
stakeholders and prudential aspects of a sound regulation, the final
guidelines have been prepared. The guidelines are given in the Annex to this circular and will be effective
from April 1, 2017.
3. In addition, clarifications
on certain queries on the subject raised by the stakeholders subsequent to
issuance of the Discussion Paper can be assessed under the link: https://rbi.org.in/scripts/FS_FAQs.aspx?fn=2.
Yours faithfully,
(Ajay Kumar Choudhary)
Chief General Manager
Annex
Guidelines
on Enhancing Credit Supply for
Large Borrowers through Market Mechanism
Definitions:
1. For the purpose of this
Framework, the following terms shall have the meaning assigned to them
herein below:
(i) Aggregate Sanctioned Credit
Limit (ASCL) means the aggregate of the fund based credit limits sanctioned
or outstanding, whichever is higher, to a borrower by the banking system.
ASCL would also include unlisted privately placed debt with the banking
system.
(ii) ‘Specified borrower’, means
a borrower having an ASCL of more than
a.
Rs.25,000
crore at any time during FY 2017-18;
b.
Rs.15,000
crore at any time during FY 2018-19;
c.
Rs.10,000
crore at any time from April 1, 2019 onwards;
(iii) ‘Reference date’, means
the date on which a borrower becomes a ‘specified borrower’.
(iv) Normally permitted lending
limit (NPLL), means 50 percent of the incremental funds raised by the
specified borrower over and above its ASCL as on the reference date, in the
financial years (FYs) succeeding the FY in which the reference date falls.
For this purpose, any funds raised by way of equity shall be deemed to be
part of incremental funds raised by the specified borrower (from outside
the banking system) in the given year;
Provided that where a specified
borrower has already raised funds by way of market instruments and the
amount outstanding in respect of such instruments as on the reference date
is 15 per cent or more of ASCL on that date, the NPLL will mean 60 percent
of the incremental funds raised by the specified borrower over and above
its ASCL as on the reference date, in the financial years (FYs) succeeding
the FY in which the reference date falls.
(v) Banking system, means all
banks in India including RRBs and co-operative banks and branches of Indian
banks abroad.
(vi) Market instruments, shall
include bonds, debentures, redeemable preference shares and any other
non-credit liability, other than equity.
Scope:
2. This guidelines will be
applicable on all single counterparties of Scheduled Commercial Banks
(SCBs), except other SCBs, NBFCs registered with RBI, AIFIs (NHB, SIDBI,
EXIM Bank and NABARD) and HFCs registered with NHB. Banks should apply
their due-diligence while deciding the NPLL for a single borrower in order
that borrowers do not circumvent the cut-off ASCL criteria by borrowing
through dummy/fictitious group companies.
3. This will come into effect
from the financial year 2017-18 onwards. The banking system shall
ordinarily keep its future incremental exposures to the specified borrowers
within the NPLL, else they will be subject to the prudential measures as
detailed below.
Prudential Measures:
4. From 2017-18 onwards,
incremental exposure of the banking system to a specified borrower beyond
NPLL shall be deemed to carry higher risk which shall be recognised by way
of additional provisioning and higher risk weights as under:
(i) Additional provisions of 3
percentage points over and above the applicable provision on the
incremental exposure of the banking system in excess of NPLL, which shall
be distributed in proportion to each bank’s funded exposure to the
specified borrower.
(ii) Additional Risk weight of
75 percentage points over and above the applicable risk weight for the
exposure to the specified borrower. The resultant additional risk weighted
exposure, in terms of risk weighted assets (RWA), shall be distributed in
proportion to each bank’s funded exposure to the specified borrower.
Explanation: For the purpose of determining exposure beyond
NPLL, subscription by the banking system to market instruments shall be
included except any subscription made by the banking system to the market
instruments issued by a specified borrower in 2017-18 and held within the
permissible prudential limits by a bank, as derived from para 5 below.
5. Banks may, at their
discretion, subscribe to bonds issued by the specified borrowers (over and
above NPLL) in the first year of this framework taking effect, i.e.,
2017-18 subject to extant investment guidelines and these being divested in
the subsequent three years as per the following milestones:
(i) Not less than 30 percent by
March 31, 2019
(ii) Not less than 60 percent by
March 31, 2020
(iii) Not less than 100 percent
by March 31, 2021.
6. All holdings by a bank of
market instruments issued by a 'specified borrower' after the ‘reference
date’ shall be held in the AFS/HFT category and marked to market as
applicable thereto. However, banks may, at their discretion, value their
holdings of market instruments issued by the specified borrowers in 2017-18
at book value.
7. RBI will review the entire
guidelines including the ASCL limits after a year of the guidelines
becoming fully implemented, i.e. during FY 2019-20.
|