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Thursday, May 28, 2020

Easier fund flows for India Inc: Banks’ group exposure limit hiked to 30% of capital base

Under the existing guidelines on the Large Exposures Framework, the exposure of a bank to a group of connected counterparties should not be higher than 25 per cent of the lender’s eligible capital base at all times.

By: ENS Economic Bureau | New Delhi | Published: May 23, 2020 1:42:32 am
RBI Governor Shaktikanta Das said many corporates are finding it difficult to raise funds from the
capital market. (PTI)

To facilitate the flow of funds to corporates, the Reserve Bank of India (RBI) on Friday decided, as a one-time measure, to increase a bank’s exposure to a group of connected companies from 25 per cent to 30 per cent of the eligible capital base of the bank. The increased limit will be applicable up to June 30, 2021.

Under the existing guidelines on the Large Exposures Framework, the exposure of a bank to a group of connected counterparties should not be higher than 25 per cent of the lender’s eligible capital base at all times.

“On account of the COVID-19 pandemic, debt markets and other capital market segments are witnessing heightened uncertainty,” RBI Governor Shaktikanta Das said. As a result, many corporates are finding it difficult to raise funds from the capital market and are predominantly dependent on funding from banks, he added.

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“Another move the RBI should consider is to allow one-time restructuring of loans to relieve stressed businesses. Group exposure limit for lenders to corporates to 30 per cent from 25 per cent is a welcome move too, as it is expected to help banks meet the borrowing requirements of the private sector,” said Chandrajit Banerjee, director general of Confederation of Indian Industry.

Meanwhile, the central bank has also decided to extend the time period for completion of remittances against normal imports into India (except in cases where amounts are withheld towards guarantee of performance) from 6 months to 12 months from the date of shipment for such imports made on or before July 31, 2020.

The measure will provide greater flexibility to importers in managing their operating cycles in a COVID-19 environment, the Reserve Bank said. COVID-19 related disruptions to cross-border trade have imposed slowdown in manufacturing/sale of finished products, and delay in realisation of sale proceeds, both domestically and overseas.

In turn, this has elongated the operating cycle for business entities, it added.

Rs 15,000-crore credit line for Exim Bank

Mumbai: The Reserve Bank of India (RBI) on Friday decided to extend a line of credit of Rs 15,000 crore to the Export-Import Bank of India (Exim Bank) for a period of 90 days from the date of availment with rollover up to a maximum period of one year, so as to enable it to avail a US dollar swap facility to meet its foreign exchange requirements.

“As Exim Bank predominantly relies on foreign currency resources raised from international financial markets for its operations, it is facing challenges to raise funds in international debt capital markets,” the central bank said.

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