Tuesday, September 13, 2016

Enhancing Credit Supply for Large Borrowers



 Definitions:
(i)     Aggregate Sanctioned Credit Limit (ASCL): The aggregate of the fund based credit limits or outstanding, whichever is higher. It would also include unlisted privately placed debt with the banking system.
(ii)   ‘Specified borrower’: A borrower having an ASCL of more than
a)                     Rs.25,000 crore at any time during FY 2017-18;
b)                    Rs.15,000 crore at any time during FY 2018-19;
c)                     Rs.10,000 crore at any time from April 1, 2019 onwards;
(iii) ‘Reference date’: The date on which a borrower becomes a ‘specified borrower’.
(iv) Normally permitted lending limit (NPLL): 50% of the incremental funds raised by the specified borrower over and above its ASCL as on the reference date, in the financial years (FYs) succeeding the FY of the reference date falls. Any funds raised by way of equity shall be deemed to be part of incremental funds;
Where a specified borrower has
·       already raised funds by way of market instruments and
·       the amount, as on the reference date is 15% or more of ASCL
the NPLL will mean 60% of the incremental funds raised by the specified borrower over and above its ASCL as on the reference date, in the financial years (FYs) succeeding the FY in which the reference date falls.
(v)   Banking system: All banks in India including RRBs and co-operative banks and branches of Indian banks abroad.
(vi) Market instruments, shall include bonds, debentures, redeemable preference shares and any other non-credit liability, other than equity.

Scope:
These guidelines will be applicable on all single counterparties of Scheduled Commercial Banks (SCBs), except other SCBs, NBFCs registered with RBI, AIFIs and HFCs registered with NHB. It will be effective from the year 2017-18 onwards.

Prudential Measures:
From 2017-18 onwards, incremental exposure to a specified borrower beyond NPLL shall be deemed to carry higher risk, hence, higher provisioning and higher risk weights will apply as under:

(i)             3 percentage points over and above the applicable provision, which shall be distributed in proportion to each bank’s funded exposure to the specified borrower.
(ii)           Additional Risk weight of 75 percentage points over and above the applicable risk weight. The additional risk weighted exposure, shall be distributed in proportion to each bank’s funded exposure to the specified borrower.

Explanation:  For the purpose of determining exposure beyond NPLL, subscription by the banking system to market instruments shall be included, except any subscription made by the banking system to the market instruments issued by a specified borrower in 2017-18 and held within the permissible prudential limits by a bank, as derived from the para  below.

Banks may, subscribe to bonds issued by the specified borrowers (over and above NPLL) in the first year, subject to investment guidelines and these being divested in the subsequent three years:
(i)   Not less than 30% by March 31, 2019
(ii) Not less than 60% by March 31, 2020
(iii)                   Not less than 100% by March 31, 2021.

All holdings by a bank of market instruments issued by a 'specified borrower' after the ‘reference date’ shall be held in the AFS/HFT category and marked to market. However, banks may, value their holdings of market instruments issued by the specified borrowers in 2017-18 at book value.
Based on RBI notification dated 25/08/2016. For any further clarification, please refer www.rbi.org.in