RBI exposure limits to drive financing diversification

Author: Ashley Lee | Published: 8 Apr 2015

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 markets.

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.

 

KEY TAKEAWAYS

The Reserve...