Ceiling On Unsecured Exposures Withdrawn

Font Size

Print

Feedback

Email

Discuss

Mumbai, May 18: The Reserve Bank of India (RBI) has extended further flexibility to banks on their loan policies and has withdrawn the limit on their unsecured exposures and allowed banks’ boards to fix their own policy on unsecured exposures.

However, banks would be required to make an additional provision of 10 per cent (a total provision of 20 per cent) of the total outstanding advances in the substandard category to cover expected loss on unsecured exposures. The provision at the level of 100 per cent will continue for the unsecured exposures in doubtful and loss categories.

At present, banks are required to limit their commitments by way of unsecured exposure in such a manner that 20 per cent of a bank’s outstanding unsecured guarantees plus the total of its outstanding unsecured advances should not exceed 15 per cent of its total outstanding advances.

The RBI has also decided to discontinue the practice of giving case-to-case basis approval for prudential credit exposure limits for single and group borrowers.

However, banks may, in exceptional cases, with the approval of their boards, consider enhancement of the exposure to the borrower up to a maximum of further 5 per cent of capital funds, subject to the borrower consenting to the banks making appropriate disclosures in their Annual Reports.

The RBI has asked banks to phase out the excess credit exposures beyond the prescribed limits to single or group borrowers either by increasing capital funds or reducing exposures by March 31, 2005.