Reviewing the current situation in the oil sector, Reserve Bank of India (RBI) has decided to revise with immediate effect, the exposure limit to 25% of the capital funds, only in respect of oil companies who have been issued oil bonds (which do not have SLR status) by the Government of India.
In addition to this, banks may, in exceptional circumstances, as hitherto, consider enhancement of the exposure to oil companies up to a further 5 % of capital funds.
As a prudential measure aimed at better risk management and avoidance of concentration of credit risks, RBI had advised banks to fix limits on their exposure to a specific industry or sectors and has prescribed regulatory limits on banks’ exposure to individual and group borrowers in India.
In addition, banks are also required to observe certain statutory and regulatory exposure limits in respect of advances against/investments in shares, debentures, and bonds.
The exposure ceiling limit is 15% of capital funds in case of a single borrower and 40 % of capital funds in the case of a borrower group. The capital funds for the purpose will comprise of tier I and tier II capital, as defined under capital adequacy standards
Credit exposure to a single borrower may exceed the exposure norm of 15% of the bank’s capital funds by an additional 5% (i.e. up to 20 %) provided the additional credit exposure is on account of extension of credit to infrastructure projects.
Credit exposure to borrowers belonging to a group may exceed the exposure norm of 40% of the bank’s capital funds by an additional 10% (i.e., up to 50%), provided the additional credit exposure is on account of extension of credit to infrastructure projects.