The Reserve Bank has decided that capital infusion, either through domestic issue or overseas float, after the published balance sheet date would be taken into account for determining the credit exposure ceiling for individual or group borrowings. New guidelines will be effect from March 31 next.
As of now, limits on credit exposure to individual and group borrowers are determined as per the published accounts as on March 31 of the previous fiscal. The new exposure norms would effectively allow commercial banks to offer higher credits to individual or group borrowers.

The current norm for determining exposure limit as on the date of the balance sheet deprives banks of the benefits of raising capital or long-term resources after the date of the balance sheet for determining the exposure cap. It can be recalled that banks have been demanding from the central bank that the reckoning of capital funds should be made on the real-time basis. The RBI has also asked banks to furnish a certificate on completion of the augmentation of capital before reckoning the additional paid-up capital and free reserves.

However, other accretions to capital funds by way of quarterly profits would not be eligible for determining exposure ceiling. The apex bank also advised banks to ensure that they do not take exposures in excess of the ceiling prescribed in anticipation of fresh capital infusion at a future date.
Last May the banking guardian had broadened the concept of capital funds in sync with international practices for determining exposure ceiling. Capital funds now comprise total capital as defined under the capital adequacy standards, both tier-1 and tier-2 capital, effective from next March 31, which would be uniform for both the domestic and foreign banks.

As the concept of capital funds has been broadened to represent total capital, it has also been decided that for a single borrower the credit exposure limit would be 15 per cent once the new norms come into force, from the existing 20 per cent. Similarly, the group exposure limits would be adjusted at 40 per cent of capital funds.