The banking division of the ministry of finance is working on relaxing group exposure norms for big corporates.
The current norms restrict the ability of commercial banks to expand their exposure to any corporate group, as it prescribes limits on such funding. The current credit exposure ceiling is 15% of the bank?s net worth in the case of a single borrower and 40% of capital funds in the case of a borrower group. The issue has also been taken up by a sub-committee of a group of ministers, which would give its report soon.
Beneficiaries of the relaxation include the Anil Ambani group as well as other infrastructure conglomerates like the Tatas, Jindals and GMR. Sources said proposal forwarded to the Reserve Bank of India and the banking division in the department of financial services in the finance ministry is based on a request received from Reliance Power.
The restriction of group exposure limit has affected credit availability for projects in sectors like power. Funding requirements for the power sector is pegged at a whopping Rs 10,59,115 crore in the XI Plan. Modifying the group exposure norms would increase the inflow of funds for capital-intensive infrastructure projects.
The relaxation in group exposure limits is expected to be in addition to the relaxation in the external commercial borrowing policy guidelines, which too could happen soon.
In a recent letter to the finance minister P Chidambaram, Anil Ambani, chief of Reliance ADAG, had requested him to modify the existing norms for group exposure so as to aggregate their exposure for a specific business segment of the group and not exposure of all business segments (like power, telecommunications, steel, roads, etc ) of the group.
Public sector infrastructure companies like NTPC have also approached power minister Sushil Kumar Shinde to take up with the finance ministry the need to modify group exposure limits.
In the power sector alone, where plans are on to add over 50,000 mw capacity over the next five years, a large portion of the capacity addition will have to come through five ultra-mega power projects of 4,000 mw each. Each UMPP would cost close to Rs 16,000 crore and the funding required for UMPPs can be gauged from the fact that about $3 billion equivalent in debt financing needs to be raised for each UMPP.
Therefore, a relaxation in ECB as well as group exposure norms will help remove the bottlenecks being faced by big corporates in raising requisite debt for funding their capital-intensive infrastructure projects.