181exposure-norms1

7/23/2019 181EXPOSURE-NORMS1

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EXPOSURES NORMSExposure

Exposure includes credit exposure (funded and non-funded credit limits) and investmentexposure (including underwriting and similar commitments). The sanctioned limits oroutstanding, whichever are higher, shall be reckoned for arriving at the exposure limit.

redit exposure comprises of all t!pes of funded and non-funded credit limits and facilitiesextended b! wa! of e"uipment leasing, hire purchase finance and factoring services. The#nvestment Exposure comprises of investments in shares and debentures of companies, $%&bonds, and ommercial $apers ($s).

'anks are re"uired to fix limits on their exposure as a prudential measure aimed at better riskmanagement and avoidance of concentration of credit risks as also to observe certain statutor!and regulator! exposure limits in respect advances against some securities.

Ceilings

The exposure ceiling limits in case of a single borrower and borrower group would be 15%and 40%of capital funds of the bank respectivel!.

The capital funds comprise of Tier # and Tier ## capital as per the published accounts as onarch * of the previous !ear. #nfusion of capital under Tier # and Tier ## either through domesticor overseas issue (in case of foreign banks+ branches in #ndia capital funds received from their..) after the published balance sheet date will also be taken into account for determining theexposure ceiling. owever, accretions b! wa! of "uarterl! profits, etc. would not be eligible to bereckoned for determining the exposure ceiling.

The ceiling limit can be exceeded in respect of single and group borrowers b! 5%to 20%andb! 10%to 50%of the bank+s capital funds respectivel! provided the additional credit exposureis on account of extension of credit to infrastructure proects.

#n addition to the exposure permitted above, banks can, in exceptional circumstances, withthe approval of their 'oards, consider enhancement of the exposure to a borrower (single as

well as group) up to a further 5%of capital funds subect to the borrower consenting to thebanks making appropriate disclosures in their /nnual 0eports.

The exposure limit in respect of single borrower is 25%of the capital funds in respect of ilompanies who have been issued il 'onds (which do not have %10 status) b! 2# and thesame can be increased, in exceptional circumstances, up to a further 5percent of capital funds.

The exposure (both lending and investment, including off balance sheet exposures) of a bankto a single 3'4 5 3'4-/4 (/sset 4inancing ompanies) should not exceed 10% / 15%ofthe bank6s capital funds as per its last audited balance sheet which can be increased to15%/20%of their capital funds provided the excess exposure is on account of funds on-lent b!the 3'4 5 3'4-/4 to the infrastructure sector.

The exposure limits are applicable to lending under consortium arrangements also.

'ills purchased 5 discounted 5 negotiated under 1 (where the pa!ment to the beneficiar! isnotmade 'uner reser!e') will be treated as an exposure on the 1 issuing bank and not onthe borrower. #n the case of negotiations 6 uner reser!e'the exposure should be treated as onthe borrower. 3ow-a-da!s there is no provision for negotiating 7under reserve+.

Exe"ptions #ro" Ceiling nor"s

'anks+ exposure in the following categor! is exempted from compliance of the exposure norms8-

*


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0ehabilitation of %ick59eak #ndustrial &nits

4ood credit

2uaranteed b! the 2overnment of #ndia

1oans against wn Term :eposits

Exposure on 3/'/0:

Me$sure"ent o# Creit Exposure o# eri!$ti!e Prou&ts

redit exposures, arising on account of the interest rate ; foreign exchange derivativetransactions and gold, are computed using the 6urrent Exposure ethod6, (dealt separatel!).9hile computing the credit exposure banks ma! exclude 6sold options6, provided the entirepremium 5 fee or an! other form of income is received 5 reali


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The polic! should also cover unhedged foreign exchange exposure of all their clients including%mall and edium Enterprises (%Es) and taking into account exposure from all sourcesincluding foreign currenc! borrowings and External ommercial 'orrowings.

'anks which have large exposures to clients are re"uired to monitor and review on a monthl!basis, through a suitable reporting s!stem, the unhedged portion of the foreign currenc!

exposures of those clients, whose total foreign currenc! exposure is relativel! large (sa!,about &% @ >A million or its e"uivalent).

The review of unhedged exposure for %Es is also being done on a monthl! basis. #n allother cases, banks are re"uired to put in place a s!stem to monitor and review suchposition on a "uarterl! basis.

Exposure to Re$l Est$te

'anks should frame comprehensive prudential norms relating to the ceiling on the totalamount of real estate loans, single5group exposure limits for such loans, margins, securit!,repa!ment schedule and availabilit! of supplementar! finance and the polic! should beapproved b! the banks6 'oards.

'anks exposure to entities for setting up %pecial Economic Bones (%EBs) or for ac"uisition ofunits in %EBs which includes real estate would be treated as exposure to commercial real estatesector for the purpose of ris) *eig+t $n &$pit$l $e,u$&(from a prudential perspective andaccordingl! provision has to be made besides assigning appropriate risk weights for suchexposures. This ma! be treated as exposure to n#r$stru&ture se&toronl! for the purpose ofExposure norms which provide some relaxations for the #nfrastructure sector.

Exposure to -e$sing. ire Pur&+$se $n $&toring Ser!i&es

'anks exposure to leasing, hire purchase and factoring activities should not ex&ee 10 per&entof total advances.

Exposure to ni$n s/ 3+oll( o*ne Susii$ries ro$ $n O!erse$s Step6o*n

Susii$ries o# ni$n Corpor$te'anks exposure b! wa! of credit5non-credit (152uarantees) as also bu!er6s credit5acceptancefinance to overseas parties for facilitating export of goods ; services from #ndia s+oul notex&ee 20 per&ent o# $n)s7 uni"p$ire &$pit$l #uns 89ier $n 9ier &$pit$l:.subect tothe conditions including the holding of #ndian compan! is more than A*C, compliance of %ec.>A of '.0. *DD, the resource base should be funds held in foreign currenc! accounts such as430('), EE4, 04, etc.

;$n)s7 Exposure to C$pit$l M$r)ets < R$tion$li=$tion o# nor"s

The revised guidelines on banks+ exposure to capital markets which came into effect from /pril*, >==?. 'anks+ capital market exposure includes both direct and indirect exposures on the

various components of capital market such as direct investment in e"uit! shares, convertibledebentures, advances against shares5bonds5debentures, etc. and secured and unsecuredadvances to stock brokers and guarantees issued on behalf of them, etc.

#rrevocable $a!ment ommitments (#$s)

'anks issue #rrevocable $a!ment ommitments (#$s) in favour of stock exchanges on behalfof domestic mutual funds54##s to facilitate the transactions done b! these clients. #n order toprotect the banks from the adverse movements in the e"uit! prices and the possibilit! of default


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b! the clients, various risk mitigation measures have been prescribed. The #$ will be treatedas a financial guarantee.

-i"its on ;$n)s7 Exposure to C$pit$l M$r)ets

St$tutor( li"it on s+$re+oling

3o banking compan! shall hold shares in an! compan!, whether as pledgee, mortgagee orabsolute owner, of an amount exceeding >0%of the paid-up share capital of that compan! or>0% of its own paid-up share capital and reserves, whichever is less (%ection *D(>) of the '.0.

/ct, *DD)

Regul$tor( -i"it 8Solo/Consoli$te ;$sis:

The aggregate exposure of a bank5consolidated bank to the capital markets in all forms (bothfund based and non-fund based) s+oul not ex&ee 40 per &ent o# its net*ort+/&onsoli$te net *ort+ as on arch * of the previous !ear. 9ithin this overall ceiling,the bank+s direct investment5aggregate direct exposure b! wa! of consolidated investment inshares, convertible bonds 5 debentures, units of e"uit!-oriented mutual funds and all exposuresto Fenture apital 4unds (F4s) Gboth registered and unregisteredH should not exceed >= percent of its net worth5consolidated net worth.

Net 3ort+

3et worth would comprise $aid-up capital plus 4ree 0eserves including %hare $remium ( butexcluding 0evaluation 0eserves), plus #nvestment 4luctuation 0eserve and credit balance in$rofit ; 1oss account, less debit balance in $rofit and 1oss account, /ccumulated 1osses and#ntangible /ssets.

En+$n&e"ent in li"its

'anks having sound internal controls and robust risk management s!stems can approach the0eserve 'ank for higher limits together with details thereof.

te"s ex&lue #ro" C$pit$l M$r)et Exposure

The following investments in capital markets are exempted from the reckoning of capital marketexposure of banks looking to the nature of their activities vi


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$romoters+ shares in the %$F of an infrastructure proect pledged to the lendingbank for infrastructure proect lending.

in$n&ing o# e,uities $n in!est"ents in s+$res

The capital market exposure of banks on solo5consolidated basis should not exceed 40% o# its

net *ort+/&onsoli$te net *ort+as on arch *stof the previous !ear. 'esides this, thecertain capital exposure is subect to other restrictions5norms as under8-

3o. 3ature of capital market exposure ther restrictions5norms

=*. /dvances against shares to individuals(shares, convertible bonds, convertibledebentures and units of e"uit! orientedmutual funds)

$h!sical 4orm8 3ot to exceed0s. *= 1akh

:emat 4orm 8 3ot to exceed 0s. >= 1akh

=>. 4inancing of #nitial $ublic fferings (#$s)to individuals (shares, convertible bonds5debentures, units of e"uit! oriented mutualfunds and $%& bonds

3ot exceed 8 0s.*= lakh (forsubscribing to #$s)

=. 'ank finance to assist emplo!ees to bu!shares of their own companies underEmplo!ees %tock ption $lan (E%$)5reserved b! wa! of emplo!ees6 "uotaunder #$ including 4ollow-on $ublicffers (4$s)

To the extent of D=C of thepurchase price of the shares or0s.>= lakh whichever is lower.

=. /dvances against shares to %tock 'rokers; arket akers

'anks are free to provide creditfacilities based on their commercial

udgment (within overall =C).owever, $n)s o not extencredit facilities directl! or indirectl!for arbitrage operations in %tock

Exchanges?=A. 'ank financing to individuals against

shares to oint holders or third part!beneficiaries

4inance should not be to circumventthe limits placed on loans5advancesagainst shares and other securitiesspecified above.

=K. /dvances against units of utual 4unds %ubect to8-Lunits listed in the %tock ExchangeLcompleted the minimum lock-in-period (relevant scheme)Llinked to 3et /sset Falue(3/F)5repurchase price or themarket value whichever is lessI

Lattract the "uantum and marginre"uirementsILpurpose oriented

=?. /dvances to other borrowers againstshares5 debentures5 bonds

an accept as collateral for securedloans granted as working capital orfor other productive purposes ormargin for new proects or

A


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expansion of existing business

=M. 'ank 1oans for financing promoters+contribution

#ndividual 8 *AC of capital funds2roup 8 =C of capital funds

/nd subect to the %tatutor! limit onshare holding in companies (%ec.*D(>) of '.0. /ct *DD and within

=C of net worth.=D. 'ridge 1oans $eriod not exceeding one !ear,

but, within =C of networth.

*=. #nvestments in Fenture apital 4unds(F4s)

#t should not exceed >=C within thecapital market exposure norm of=C of the net worth as on arch*stof previous !ear.

**. argin on advances against shares 5 issueof guarantees on behalf of stockbrokersand market makers

&niform margin of A=C of whichminimum cash margin of >AC(within A=C) to be maintained forissuance of guarantees for capitalmarket operations.

*>. :isinvestment $rogramme of 2# 9ithin the regulator! ceiling of =Cof net worth. 0elaxation, on case tocase basis, is permitted to banks insuch a manner that the total capitalexposure, net of exposure under thedisinvestment programme, is withinthe regulator!5 prudential individual5group exposure ceiling

*. 4inancing for ac"uisition of e"uit! inverseas companies

%tatutor! limit on share holding incompanies (%ec. *D(>) of '.0. /ct)

*. 0efinance %cheme of Export #mport 'ank

of #ndia

/pproval of the EJ# 'ank for

refinance.*A. /rbitrage perations 'anks prevented from undertaking

arbitrage operations themselves andextending credit facilities for thepurpose.

*K. argin Trading inimum margin A=C and theshares should be in demateriali


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%uitable 0isk anagement mechanism should be put in place so as to ensure that theexposure to stockbrokers is well diversified, etc.

4ormation of a suitable /udit ommittee to have surveillance and monitoring of investment inshares 5 advances against shares and appropriate reporting to the 'oard the overall exposure to

capital market, compliance of guidelines, etc.$lu$tion $n is&losure

E"uit! shares in a bank+s portfolio - as primar! securit! or as collateral for advances or for issueof guarantees and as an investment - are re"uired to be marked to market preferabl! on a dail!basis, but at least on weekl! basis. 'anks are re"uired to disclose the total investments made ine"uit! shares, convertible bonds and debentures and units of e"uit! oriented mutual funds asalso aggregate advances against shares in the N3otes on /ccountO to their balance sheets.

Cross +oling o# &$pit$l $"ong $n)s / #in$n&i$l institutions

'anks6 5 4#s6 investment in the following instruments, which are issued b! other banks 5 4#s andare eligible for capital status for the investee bank 5 4#, should not exceed 10%of the investing

bank6s capital funds (Tier # plus Tier ##)8a. E"uit! sharesIb. $reference shares eligible for capital statusIc. %ubordinated debt instrumentsId. !brid debt capital instrumentsI ande. /n! other instrument approved as in the nature of capital.

'anks 5 4#s should not ac"uire an! fresh stake in a bank6s e"uit! shares, if b! such ac"uisition,the investing bank6s 5 4#6s holding exceeds 5%of the investee bank6s e"uit! capital.

'ank+s54#+s e"uit! holdings in another bank held under provisions of a St$tutewill be outsidethe purview of the ceiling prescribed above.

M$rgin Re,uire"ents

;$n)s' Exposure to Co""oit( M$r)ets

1ike in case of stock brokers, 'anks issue guarantees on behalf of commodit! brokers infavour of national level commodit! exchanges viAC (within the abovemargin of A=C) as per the ommodit! Exchange 0egulations.

;$n)s7 exposure in respe&t o# Curren&( eri!$ti!es seg"ent

The exposure under the currenc! derivatives segment is treated outside capital marketexposure norms including margin re"uirements as well as intra-da! monitoring are notapplicable to banks+ exposure to brokers.

-i"its on exposure to unse&ure gu$r$ntees $n unse&ure $!$n&es

The banks are re"uired to formulate their own policies on the extent of unsecured exposures&nsecured exposure+ is defined as an exposure where the reali


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