Mumbai, Oct 29: The Reserve Bank of India is planning to cap banks and financial institutions’ exposure limit to individual client to 15 per cent of the lending entity’s net worth from the present level of 25 per cent. As a first step towards this, the RBI pared the limit to 20 per cent effective from April, 2000.

Effectively the central bank has asked the banks institutions to bring the exposure level down by five per cent over the next two years as majority of the banks and institutions have a 25 per cent limit for any individual company set by their own internal exposure guidelines.

Though RBI claims that measure is to bring it on a par with international standard, the bankers are of the opinion that central bank is concerned about the asset quality of banks and institutions in the context of burgeoning non-performing assets. ‘‘RBI has both risk perception and asset quality in mind while giving a fiat like this,’’ said chairman and managing director S Rajagopal.

Both the level of existing and future NPA accrual have become key factors for taking this decision, said chairman and managing director Union Bank AT Pannirselvam.

According to ICICI managing director and chief executive officer KV Kamath, banks and financial institutions with strong capital base and efficient risk management systems need not be unduly worried about exposure limits.

This step is certainly going to have beneficial impact, particularly on exposure levels of weak entities in the system.‘‘ This measure will not have any impact on ICICI given the enhanced capital base,’’ said Kamath.

State Bank of India chairman GG Vaidya said that his bank’s internal exposure norm has been fixed at 15 per cent and the new norm by the central bank would not have any impact on the bank.

Industrial Development Bank of India chairman GP Gupta said that the RBI measure aims at creating a condition to diversify the risk. ‘‘The current 25 per cent exposure norm followed by the institutions was certainly at the higher side,’’ he said.

‘‘I would like the limit further reduced to 15 per cent,’’ added Pannir Selvam of Union Bank.

However, Rajagopal of Bank of India said the central bank is expected to be flexible and banks should be allowed to approach it for special permission on a case-to-case basis.

“I would not like to reduce my exposure for an good accounts, rather will prefer to seek special permission to retain my exposure limit beyond 20 per cent,’’ he pointed out.