RBI hikes group exposure limit of banks to 30%, state borrowing rules relaxed

NEW DELHI: The Reserve Bank of India (RBI) on Friday raised the group exposure limit of banks to 30% from 25% for a temporary period till 30 June, 2021. The announcement was made by Governor Shaktikanta Das in a televised address today. The limit will be restored to 25% after the deadline unless the RBI decides otherwise.

Group exposure limit determines the maximum amount a bank can lend to one business house. This is done to prevent the troubles at entity having a spillover effect on the bank which could lead to a systemic risk. The RBI took the step today as various large business groups were finding it hard to raise money from banks in a tight money market, impacted by covid-19 crisis.

"In view of the current difficulty in raising resources from capital markets, the group exposure limit of banks is being increased from 25 per cent to 30 per cent of eligible capital base, for enabling corporates to meet their funding requirements from banks," the governor said in his address.

The central bank also relaxed rules governing borrowing by states to help them meet their own liabilities and expenditure requirements. In order to ease the pressures of bond redemption on states, rules governing withdrawal from consolidated sinking fund (CSF) have been eased. CSF is maintained by the state governments with the RBI as a buffer for repayment of their liabilities.

At the same time, the RBI has ensuredding that depletion of the fund balance happens in a prudent manner.

These relaxations to states will release an additional amount of about Rs13,300 crore. Together with the normally permissible withdrawal, this measure will enable the states to meet about 45% of the redemptions of their market borrowings, due in 2020-21. This change in withdrawal norms will come into force with immediate effect and will remain valid till March 31, 2021.