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Exposure norms

Nov 29, 2014

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  • 1. EXPOSURE NORMSMade by:-Kumar Anurag - 11020241048Mohil Poojara -11020241051Pratik Chury - 11020241055
  • 2. INTRODUCTION 9/19/2012 RBI has advised banks to limit their exposure to specific industry or sectors Prescribed regulatory limit on banks exposure to individual and group borrowers Certain statutory and regulatory exposure limits in respect of advances against/investments in shares, convertible debentures/bonds, units of equity-oriented mutual funds, and all exposures to venture capital firms Reason ? 2
  • 3. 9/19/2012Better Risk Management andavoidance of concentration of Credit Risk 3
  • 4. IMPORTANT DEFINITIONS 9/19/2012 Exposure: Credit exposure(funded and non funded), investment exposure Higher of sanctioned limit or outstandings will be taken for exposure limit Credit Exposure: All types of funded or non funded credit limit Facilities extended by ways of leasing, hire purchase finance, and factoring services 4
  • 5. IMPORTANT DEFINITIONS 9/19/2012 Investment Exposure: Investment in shares and debentures of companies, PSU bonds, Commercial Papers Investment in corporate bonds, guaranteed by PFI, will be treated as exposure to the PFI For PFI exposure of 50% on corporate as its a non fund facility For Banks exposure of 100% on PFIs Investments issued by SC/RC as compensation consequent upon sale of financial assets will constitute exposure on the SC/RC 5
  • 6. IMPORTANT DEFINITIONS 9/19/2012 Capital Funds Tier I and Tier II capital as defined under Capital Adequacy Standards Infusion of capital after published balance sheet date will also be considered for determining exposure ceiling Other accretion by way of quarterly profit etc. not allowed Prohibition in taking exposure exceeding ceiling in anticipation of infusion of capital 6
  • 7. IMPORTANT DEFINITIONS 9/19/2012 Net Worth Net worth would comprise Paid-up capital plus Free Reserves including Share Premium ( but excluding Revaluation Reserves), plus Investment Fluctuation Reserve and credit balance in Profit & Loss account, less debit balance in Profit and Loss account, Accumulated Losses and Intangible Assets. 7
  • 8. IMPORTANT DEFINITIONS 9/19/2012 Group Left to perception of banks Guiding principle: commonality of management and effective control Split in group: treated as 2 different groups, prudence to be administered to check whether split is engineered to get more exposure 8
  • 9. IMPORTANT DEFINITIONS 9/19/2012 Measurement of Credit Exposure to Derivative Products Current Exposure Method The current exposure method is the sum of current credit exposure and potential future credit exposure. While computing the credit exposure banks may exclude sold options, provided the entire premium / fee or any other form of income is received / realized. Current credit exposure is defined as the sum of the positive mark-to-market value of these contracts. The Current Exposure Method requires periodical calculation of the current credit exposure by marking these contracts to market, thus capturing the current credit exposure. Potential future credit exposure is determined by multiplying the notional principal amount of each of these contracts irrespective of whether the contract has a zero, positive or negative mark-to- market value by the relevant add-on factor according to the nature and residual maturity of the instrument as detailed by the RBI in its Circular dt. 02.07.12 9
  • 10. EXPOSURES TO INDIVIDUAL/GROUPBORROWERS Exposure Ceiling Limits 9/19/2012 15% of Capital Funds for Individual borrowers 40% of Capital Funds for Group borrowers Extension of Ceiling Limits 5% for Individual and 10% for Group Condition: Additional credit exposure is on account of extension of credit to infrastructure projects 5% for Individuals and Group Condition: Exceptional circumstances, approval of board, disclosures in Annual Report 25% + 5% Condition: Oil companies with GOI Oil Bonds 10
  • 11. NBFCS 9/19/2012 Exposure Ceiling Limits NBFC 10% NBFC AFC 15% Infrastructure Finance Companies 15% Extensions Additional 15% - NBFC, Additional 20% - NBFC (AFC), Up to 20% - IFCs Condition: Lent to infrastructure sector Banks should set internal credit limits for all NBFCs 11
  • 12. BILLS DISCOUNTED UNDER LC 9/19/2012 Discounting/purchasing/negotiating bank Exposure to LC Issuing Bank LC Issuing Bank Exposure to Borrower 12
  • 13. EXEMPTIONS 9/19/2012 Rehabilitation of Sick/Weak Industrial Units Food Credit Guarantee by GOI Loans against own Term Deposits Exposure on NABARD 13
  • 14. EXPOSURE TO INDUSTRY/CERTAIN SECTORS 9/19/2012 Internal Exposure Limits Fixing of Sectoral Limits Foreign Currency Exposure Foreign currency loans > USD 10 mio, policy for appropriate limits to be set Exporter SMEs Monthly review and monitoring unhedged portion of exposure > USD 25 mio 14
  • 15. EXPOSURE TO INDUSTRY/CERTAIN SECTORS 9/19/2012 Exposure to Real Estate Frame comprehensive prudential norms Exposure to SEZs or for acquisition of units ins SEZs which includes real estate will be treated as exposure to commercial real estate sector for the purpose of risk weight and capital adequacy Exposure to Leasing, Hire Purchase and Factoring Services Should not exceed 10 % of total advances 15
  • 16. EXPOSURE TO INDUSTRY/CERTAIN SECTORS