RBI moves to restrict bank exposure to corporate loans

The Reserve Bank of India (RBI) has proposed to lower the ceiling on how much a bank can lend to a single corporate group, in a move to curb risks in the banking sector at a time when bad loans are on the rise.

Under the proposal, banks would only be allowed to lend up to 25 per cent of their core capital, down from the earlier ceiling of up to 55 percent, starting Jan. 1, 2019.

The central bank also said late on Friday it would consider setting a minimum percentage of capital requirements that companies must raise from corporate bond and commercial paper markets, saying the corporate sector had become too dependent on banks for their financial needs.

The RBI requested feedback on its proposals by April 30.

The central bank regularly issues discussion papers on proposals, which are not final measures.

The RBI had said earlier that it planned to review the lending cap to companies to gradually align it with a 25 per cent ceiling set by global standard-setter Basel Committee on Banking Supervision.

Analysts have said in the past that this was more of a prudential measure, as banks typically do not breach current caps.