The issue came up for discussion at the head of institutions' meeting (HIM)held in Mumbai on Wednesday. The central bank is planning to cap banks andfinancial institutions' exposure limit to individual clients to 15 per centof the lending entity's net worth from the present level of 25 per cent. Asa first step towards this, the the central bank pared the limit to 20per cent effective from April, 2000. The announcement was made in themid-term credit policy on October 29.

"The institutions will take up the issue with the central bank. Consideringthe fact that a lot of projects are facing cost and time overrun, it will bedifficult to reduce the exposure limit overnight," a highly placedinstitutional source said.

"The RBI decision will affect a whole lot on projects which have been underimplementation as no new lender will step in at this stage. Moreover, theinstitutions' plan to sanction fresh loans to the last mile projects willalso not materialise because of the new stipulation. Unless the RBI dilutesits stand, these projects will suffer," another institutional source pointedout.

The central bank had asked the banks and institutions to bring the exposurelevel down to 20 per cent by April next year as majority of the banks andinstitutions have a 25 per cent limit for any individual company set bytheir own internal exposure guidelines. Though RBI claims that measure is to bring it on a par with international standard, the bankers feltthat RBI is concerned about the asset quality of banks and institutions inthe context of burgeoning non-performing assets. ``RBI has both riskperception and asset quality in mind while giving a fiat like this,'' saidchairman and managing director of a state run bank. Both the level ofexisting and future non-performing assets accrual have become key factorsfor taking this decision, said another bank chief.

According to a senior banker, banks and financial institutions with strongcapital base and efficient risk management systems need not be undulyworried about exposure limits.

Even though some of the institutional sources admit in private that thepresent 25 per cent exposure norm followed by the institutions was certainlyat the higher side, at the Wednesday's high-level meeting there was aconsensus that it would be difficult to bring down the exposure limit overthe next five months.

Commercial banks will by and large remain unaffected by the RBI stipulationas most of the banks' internal exposure norm has been fixed at 15 per cent,a banking source said.