RBI to facilitate norms for banks' corporate exposure via market securities, to recall earlier framework

Mumbai: The Reserve Bank of India (RBI) proposed on Wednesday to withdraw its framework in August 2016 for improving credit offer for large lenders by the market mechanism. Originally, the framework aimed at concentration risk arising from the total credit exposure of the banking system to encourage a single major business and such large businesses to diversify their financing sources. “After considering, considering, Inter-Alia, the changes that have been proposed in the profile of banking financing to the corporate sector since the launch of the guidelines are proposed to withdraw the guidelines,” the RBI said. RBI Governor Sanjay Malhotra said during a conference to the policy that the central bank is not concerned about a revival in concentration risk, given the introduction of other frameworks that have since monitored the exposure to corporate monitoring, and given the significant reduction in the exposure to banks in the corporate credit during this period. “My understanding is that the 2016 policy is more about softening risk and reducing or limiting exposure to large -level business level, not at the bank level,” he said, adding that the framework is being carried away because it is unable to take care of individual banking needs. ‘You have seen that the part of businesses in total exposure to banking has fallen over the years. I think it has reduced by about 10% over the past ten years; So the risks are not as much. This is the main reason why we suggested removing it, ‘he added. In a report, SBI Research said the move could increase corporate bank credit. The estimation of incremental corporate loans, including via bonds, commercial paper and external commercial loans, at around £ 30 billion in FY25, the report states that banks have the potential to borrow another £ 3-4.5 trillion, even if 10-15% of demand for the banking system. “Although the large exposure framework, as it is introduced for banks, addresses concentration risk at an individual bank level, concentration risk at the banking system level, as and considered a risk, will be managed by specific macroRudential instruments,” RBI said in his statement. Deputy Governor Rajeshwar Rao said it could include measures such as a sector wide or consortium hood on banks’ exposure to a single entity, if necessary. The 2016 framework is not the lending of banks to the borrowers of large and highly leverage for their incremental financing over a threshold, and has also encouraged them to investigate market-based resources to meet their incremental financing needs. This includes lenders with a credit limit of the banking system of R10,000 crore and above, including funds raised by banks via market instruments such as bonds, debentures, redeemable preference shares and any other non-credit liability, except stocks. The norms include banks that make higher provisions and take on higher risks for loans to entities with a certain exposure to bank credit. “It releases the terms and capital requirements for the banks, which will bear them in the direction of great exposure, and it will be favorable for their profitability and capital ratios. However, it can increase the credit flow to the lower rated big lenders,” says Anil Gupta, senior vice president and co-group chief, ICRA. In a draft letter released late Wednesday night, the RBI said he decided to withdraw the guidelines of power on April 1, 2026, given more resilience in banking and corporate balance sheets. “However, banks are advised to continue the risks that arise from their exposure to ultra-large lenders who are used excessively and have substantial loans from the banking system,” the circular said, adding that banks may impose suitable monitoring and risk management framework for such counterparties. The central bank sought feedback and comments on the norms by October 24.