RBI increases banks' loan exposure limit to single NBFC from 15% to 20% of its capital base

Mumbai: The RBI on Thursday increased loan exposure limit of banks to a single NBFC (excluding gold loan companies) from 15 percent to 20 percent of its capital base, a move that will help increase credit supply to the crisis-ridden shadow banking sector. According to the extant ‘Large Exposures Framework (LEF)’, banks’ exposure to a single non-banking financial company (NBFC) is restricted to 15 percent of their available eligible capital base, while general single counter-party exposure limit is 20 percent, which can be extended to 25 percent by banks’ boards under exceptional circumstances. “It has been decided that a bank’s exposure to a single NBFC (excluding gold loan companies) will be restricted to 20 percent of that bank’s eligible capital base,” the central bank said in a circular. The government on its part has also been taking steps to increase liquidity in the NBFC sector, which was hit after default by IL&FS Group. The liquidity crunch in the NBFC sector has hit the retail loan segment in the country leading to a slowdown in key consumer sector lending.