Mumbai: Companies owned by business groups dependent on bank funding will have to adjust to new single borrower limits of the Reserve Bank of India (RBI) from April 1.
These companies from large business houses like Reliance, Tata, Bajaj and Aditya Birla will have to increasingly look beyond banks to raise funds as the new rules stipulate that firms with more than Rs 10,000 crore loans raise at least 50 per cent of incremental money required from bond or equity markets.
These guidelines are part of an attempt by the RBI to address the concentration risk of the banking system arising from its exposure towards a single counterparty.
The RBI timeline for such reduction in risk started in fiscal 2017-18 when single party exposure was fixed at Rs 25,000 crore. Subsequently this was reduced to Rs 15,000 crore in 2018-19 and is set to be further reduced to Rs 10,000 crore in the current financial year.
Somasekhar Vemuri, senior director, Crisil Ratings, puts the total number of large companies impacted by this RBI limit at 60 but added that almost all of them can make up for the change from borrowing from the market.
“These companies total about 60 and are large ones rated higher than investment grade.
Hence, it is likely that they find no issues in raising funds from outside the banking system.
Also, due to the gradual phasing of this regulation over the past two years, we do not expect any disruption for these com- panies,” Vemuri said.
Bank exposure to bonds issued by these companies will also be included in the calculation according to the RBI communication and banks will have to divest their investments in these instruments by March 2021.
However, bankers say that a step by step implementation of the RBI guidelines means that the banking system is not risking any disruption.
“These are companies which have been dealing with the markets for a long time now. They are a mix of private sector and government companies from diverse sectors like steel, infrastructure and telecom. They have already altered their funding mix and will continue to do so. Banks will also look to re-balance their exposure with respect to these companies,” said Jairam Sridharan, CFO, Axis Bank.
Published On : 26-03-2019
Source : Economic Times
