RBI sets banks' exposure to infrastructure finance companies at 15 per cent of capital funds

The Reserve Bank of India (RBI) has limited the exposure limit of a banks to non-banking finance companies (NBFCs) categorised as infrastructure finance companies (IFCs) to 15 per cent of capital funds as per the last audited balance sheet.

Banks may, however, increase it to 20 per cent if the same is on account of funds on-lent by the IFCs to the infrastructure sector, RBI said in a notification.

Banks' exposure to NBFCs categorised as IFCs will henceforth be risk-weighted on the credit ratings assigned to these NBFCs by external credit assessment institutions (ECAIs), the Reserve Bank of India said.

RBI, in its fiscal second quarter 2009-10 monetary policy review, had proposed to link banks' exposures to NBFC-IFCs to the ratings assigned to these NBFCs by rating agencies registered with the SEBI and accredited by the RBI.

RBI has asked banks to refer to a master circular issued by the central bank on 8 February 2010 on `New Capital Adequacy Framework' and assign appropriate risk weights, which is in line with those assigned to corporates/corporate bonds, while computing capital for credit risk and specific risk under market risk.

The RBI has asked banks to also refer to another master circular on `Bank Finance to Non-banking Financial Companies' issued on 1 July 2009, which has prescribed prudential ceilings for exposure of banks to NBFCs.