Panel likely to seek removal of group exposure limit followed by banks
With government panel planning to recommend removal of group exposure norms tying up finances for power projects will become easier.
By Subhash Narayan, ET Bureau |
NEW DELHI: Tying up finances for power projects of large business houses like Tatas, Reliance, GMR and Lanco could get easier as a government panel is planning to recommend removal of group exposure norms followed by banks while releasing funds for such projects. Reserve Bank of India (RBI) norms restrict the ability of commercial banks to expand their exposure to any corporate group by prescribing limits for such funding.
At present, the credit exposure ceiling is 15% of the bank���s capital funds (equivalent to net worth) in case of a single borrower and 40% of capital funds in case of a borrower group.
With power sector requiring more than Rs 10,00,000 crore to meet its 11th Plan targets, easing of group exposure norms would mean more funds could flow to entities that are undertaking bulk of the activity in the power sector.
���Restrictions on group exposure norms is one of the issues that is being considered by the sub-committee of the group of ministers on financial issues related to the power sector. The sub-committee is finalising its report and it would address group exposure norms,��� deputy chairman of Planning Commission Montek Singh Ahluwalia said.
Mr Ahluwalia is heading the sub-committee that is looking at various issues concerning financing of power projects. It is understood that sub-committee���s recommendations would be taken to RBI so that necessary changes could be made to prudential exposure norms of banks with special reference to the power sector. The finance ministry has already favoured higher group exposure by banks to entities in the infrastructure sector.
Relaxation of existing norms is considered necessary as SPVs set up for implementing power projects are also treated as part of the group along with their parent company, if the latter holds a substantial part of its equity and management control. This, the government feels, restricts credit flow to infrastructure SPVs.
The restriction of group exposure limit has already posed problems for projects being planned by companies of large conglomerates. It is now felt that for self-sustaining projects (ring-fenced projects), the restrictions should not apply and lending should not be treated as part of a business group to which the project belongs.
At present, the credit exposure ceiling is 15% of the bank���s capital funds (equivalent to net worth) in case of a single borrower and 40% of capital funds in case of a borrower group.
With power sector requiring more than Rs 10,00,000 crore to meet its 11th Plan targets, easing of group exposure norms would mean more funds could flow to entities that are undertaking bulk of the activity in the power sector.
���Restrictions on group exposure norms is one of the issues that is being considered by the sub-committee of the group of ministers on financial issues related to the power sector. The sub-committee is finalising its report and it would address group exposure norms,��� deputy chairman of Planning Commission Montek Singh Ahluwalia said.
Mr Ahluwalia is heading the sub-committee that is looking at various issues concerning financing of power projects. It is understood that sub-committee���s recommendations would be taken to RBI so that necessary changes could be made to prudential exposure norms of banks with special reference to the power sector. The finance ministry has already favoured higher group exposure by banks to entities in the infrastructure sector.
Relaxation of existing norms is considered necessary as SPVs set up for implementing power projects are also treated as part of the group along with their parent company, if the latter holds a substantial part of its equity and management control. This, the government feels, restricts credit flow to infrastructure SPVs.
ADVERTISEMENT
The restriction of group exposure limit has already posed problems for projects being planned by companies of large conglomerates. It is now felt that for self-sustaining projects (ring-fenced projects), the restrictions should not apply and lending should not be treated as part of a business group to which the project belongs.
Download
The Economic Times Business News App for the Latest News in Business, Sensex, Stock Market Updates & More.
The Economic Times Business News App for the Latest News in Business, Sensex, Stock Market Updates & More.
Download
The Economic Times News App for Quarterly Results, Latest News in ITR, Business, Share Market, Live Sensex News & More.
The Economic Times News App for Quarterly Results, Latest News in ITR, Business, Share Market, Live Sensex News & More.
ADVERTISEMENT
