After noticing a decline in bank lending to corporates over the years, the Reserve Bank of India has proposed to withdraw the framework which disincentivises lending by banks to specified borrowers having a credit limit of Rs 10,000 crore and above.
These guidelines were introduced in 2016 to address the concentration risk arising from such funding.
Why RBI is opening the tap for ultra-large borrowers
“The 2016 policy was more about mitigating risks and limiting exposure to large corporates at the banking system level. For the bank level, I would like to clarify that the large exposure framework which was there continues. There is no change at the individual bank level,” RBI governor Sanjay Malhotra said at the post-MPC press conference.
According to the 2019 guidelines, a bank cannot lend more than 20% of its eligible capital base to a single counterparty, and the exposure to a group of connected counterparties is capped at 25% of the bank’s eligible capital base.
New strategy for managing systemic concentration risk
Deputy governor Rajeshwar Rao said the concentration risk at the banking system level would be managed through specific macroprudential tools. “We have several tools which are available. Maybe we can look at putting a cap on the exposure from all the banks. But this is something that can be considered at a particular point, if appropriate.”
RBI has been decided to withdraw the guidelines from April 1, 2026. However, banks are advised to continue to monitor the risks emanating to them from their exposures to ultra-large borrowers who are excessively leveraged and have substantial borrowings from the banking system, the release said.