Lenders question RBI’s definition of loan exposure


Senior bankers said PSBs, which collectively are the largest lenders of working capital and corporate term loans, tend to lose to their private peers in domestic and foreign cash management activities.

Hindustan Times, Bombay | By Gopika Gopakumar and, Bombay

Several foreign and private lenders have questioned the definition of “credit exposure” in the recent Reserve Bank of India (RBI) circular which prohibits corporate borrowers from operating multiple checking accounts.

While public sector banks (PSBs) will benefit the most from the change in current account regulations announced by the RBI last Thursday, foreign and private banks have said more clarity is needed on what constitutes a exposure to a loan.

“How do you define the exhibition? Whether it is funded or not? What happens to your draw limit that is given for settlement transactions? What about forex settlement risk, whether defined as exposure? Asked a senior banker from a foreign bank.

The RBI’s August 6 circular states that borrowers exposed to more than Rs 50 crore in the banking system must have an escrow mechanism and that only banks operating such escrow can open current accounts. Companies with less than Rs 50 crore exposure to the banking system will have fewer restrictions in opening such accounts. Senior bankers said PSBs, which collectively are the largest lenders of working capital and corporate term loans, tend to lose to their private peers in domestic and foreign cash management activities.

However, with the RBI prohibiting corporate borrowers from maintaining multiple checking accounts, especially at banks with which they have low or negligible loan exposure, industry experts say PSBs will see an increase in cash management activities, which will lead to an increase in cash management activities. which will also give them access to cheaper funds. .

But many lenders ask how settlements will work out when a letter of credit or bank guarantee or foreign exchange contract is opened, and how end-use control will work. They also question whether PSOs will be able to provide the services related to external commercial borrowing or loans from export credit agencies that foreign banks have been able to provide.

Under the new guidelines, RBI has asked banks to comply with the new standards for existing current and overdraft accounts within three months. Most banks said it would be a difficult task to realign all accounts and relationships, and close checking accounts in three months.

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