IDBI Sets Stiff Exposure Limits For Cos, Groups

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Mumbai, July 18: : As a stringent risk-containment strategy, the Rs 70,000 crore Industrial Development Bank of India (IDBI) has decided to impose absolute limits on exposure to individual companies/groups/industries at levels lower than those prescribed by the Reserve Bank of India.

On prudential considerations, in view of rising non-performing assets, the board of IDBI has slowed down fresh exposure and stipulated limits on company-wise exposure. The total maximum exposure to an individual borrowing entity would be Rs 500 crore or 75 per cent of net worth of the company or 40 per cent of total loan amount, whichever is lower.

The total maximum exposure to a group would be Rs 2,000 crore or 75 per cent of the combined networth of a group, whichever is lower. The total exposure to an individual industry would be 10 per cent of the bank’s industry portfolio or Rs 5,000 crore in absolute amount, whichever is lower.

The FI has also decided to develop an internal rating mechanism for companies on the basis of which appropriate exposure limits can be specified.

Also, as part of its strategy to reposition itself before it converts itself into a universal bank, IDBI has decided to focus on less risky/clients in sanctioning of fresh credit proposals.

The slowdown in sanctions and disbursements of fresh assistance by the institution partly reflects the consolidation strategy and its approach of being selectve in accepting new business.

The institution is making concerted efforts to shift its focus more towards non-project lending and fee-based services in tune with diverse needs of its clients.

Also, in order to manage the credit risk in course of its lending and other business activities, IDBI has taken major initiative in putting in place a comprehensive credit-risk manangement (CRM) framework in association with an international consultant.

Industry-wise, the bank so far has the highest exposure to iron and steel at 15.2 per cent followed by electricity generation(13.6 per cent), cotton textile(9.1 per cent), telecom services(4.5 per cent) and petro-chemicals (4.4 per cent).

As part of constant review, the institution monitors both domestic and global trends and developments in industries accounting for high exposure in its portfolio, and takes necessary steps to improve its portfolio quality to reduce any possible adverse impact on its financials.

The strategy by the institution, for healthy business growth during 2002-2003 would revolve around improvement in asset quality, increase in business income and reduction in costs-borrowing as well as administrative.