The Reserve Bank of India’s (RBI)
discussion paper proposing that banks’ exposure to
a single corporate, to connected parties, cannot exceed 25%
could prompt companies to tap the local debt capital
The regulator published its discussion paper on its large exposures framework
on March 27. It caps exposure to connected counterparties at
25% of a financial institution’s eligible capital
base, and adds economic interdependence as a criteria in
defining a connected counterparty.
Analysts don’t expect that the move
will force banks to divest their loans, but it is believed that
this will prompt companies to find new sources of funding.
"This may be part of RBI’s initiative
to encourage high-quality borrowers to access the domestic
corporate bond market and help develop that," said Srikanth
Vadlamani, vice-president and credit officer at
Moody’s in Singapore.