The Reserve Bank of India (RBI) has said that there is a build-up of high concentration of credit risk in the banking sector and has proposed, in a discussion paper, higher provisioning norms if loans exceed a certain threshold. The discussion paper proposed the new norms to be applicable from 2017-18.
The central bank has conducted an analysis of bank loans to 77,036 corporate borrowers, of Rs.1 crore and above.
“The data analysis points towards build-up of high concentration of credit risk at the systemic level in the banking sector,” the paper said.
“While single and group exposure norms put a ceiling on the amount an entity can borrow from a single bank, there is no ceiling on total bank borrowing by a corporate entity. This has resulted in banks collectively having very large exposures to some of the large corporates in India, particularly in the power/ infrastructure, housing finance and steel sectors/ industries,” it added.
It is proposed that from 2017-18 onwards, incremental exposure of the banking system to a specified borrower beyond the threshold limit will carry 3 per cent standard asset provisioning and additional 75 per cent risk weight.
RBI also said that banks may subscribe to bonds issued by highly leveraged groups from 2017-18.
