The document discusses exposure norms set by the Reserve Bank of India (RBI) for banks. It defines key terms like exposure, credit exposure, investment exposure, and provides limits on a bank's exposure to individual borrowers, groups, sectors and capital markets. The limits are meant to manage risk and avoid high concentration of credit in any single entity. Exemptions to the limits include loans against bank deposits and exposures guaranteed by the government.

1. EXPOSURE NORMS
Made by:-
Kumar Anurag - 11020241048
Mohil Poojara -11020241051
Pratik Chury - 11020241055

2. INTRODUCTION
9/19/2012
 RBI has
 advised banks to limit their exposure to specific industry
or sectors
 Prescribed regulatory limit on banks’ exposure to
individual and group borrowers
 Certain statutory and regulatory exposure limits in
respect of advances against/investments in shares,
convertible debentures/bonds, units of equity-oriented
mutual funds, and all exposures to venture capital firms
Reason ?
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3. 9/19/2012
Better Risk Management and
avoidance of concentration of
Credit Risk
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4. IMPORTANT DEFINITIONS
9/19/2012
 Exposure:
 Credit exposure(funded and non funded), investment
exposure
 Higher of sanctioned limit or outstandings will be taken
for exposure limit
 Credit Exposure:
 All types of funded or non funded credit limit
 Facilities extended by ways of leasing, hire purchase
finance, and factoring services
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5. IMPORTANT DEFINITIONS
9/19/2012
 Investment Exposure:
 Investment in shares and debentures of companies,
PSU bonds, Commercial Papers
 Investment in corporate bonds, guaranteed by PFI, will
be treated as exposure to the PFI
 For PFI – exposure of 50% on corporate as its a non
fund facility
 For Banks – exposure of 100% on PFIs
 Investments issued by SC/RC as compensation
consequent upon sale of financial assets will constitute
exposure on the SC/RC
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6. IMPORTANT DEFINITIONS
9/19/2012
 Capital Funds
 Tier I and Tier II capital as defined under Capital
Adequacy Standards
 Infusion of capital after published balance sheet date
will also be considered for determining exposure ceiling
 Other accretion by way of quarterly profit etc. not
allowed
 Prohibition in taking exposure exceeding ceiling in
anticipation of infusion of capital
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7. IMPORTANT DEFINITIONS
9/19/2012
 Net Worth
 Net worth would comprise Paid-up capital plus Free
Reserves including Share Premium ( but excluding
Revaluation Reserves), plus Investment Fluctuation
Reserve and credit balance in Profit & Loss account,
less debit balance in Profit and Loss account,
Accumulated Losses and Intangible Assets.
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8. IMPORTANT DEFINITIONS
9/19/2012
 Group
 Left to perception of banks
 Guiding principle: commonality of management and
effective control
 Split in group: treated as 2 different groups, prudence to
be administered to check whether split is engineered to
get more exposure
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9. IMPORTANT DEFINITIONS
9/19/2012
 Measurement of Credit Exposure to Derivative Products
 Current Exposure Method
 The current exposure method is the sum of current credit
exposure and potential future credit exposure. While computing
the credit exposure banks may exclude 'sold options', provided the
entire premium / fee or any other form of income is received /
realized.
 Current credit exposure is defined as the sum of the positive
mark-to-market value of these contracts. The Current Exposure
Method requires periodical calculation of the current credit
exposure by marking these contracts to market, thus capturing the
current credit exposure.
 Potential future credit exposure is determined by multiplying the
notional principal amount of each of these contracts irrespective of
whether the contract has a zero, positive or negative mark-to-
market value by the relevant add-on factor according to the nature
and residual maturity of the instrument as detailed by the RBI in its
Circular dt. 02.07.12
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10. EXPOSURES TO INDIVIDUAL/GROUP
BORROWERS
 Exposure Ceiling Limits
9/19/2012
 15% of Capital Funds for Individual borrowers
 40% of Capital Funds for Group borrowers
 Extension of Ceiling Limits
 5% for Individual and 10% for Group
 Condition: Additional credit exposure is on account of extension of
credit to infrastructure projects
 5% for Individuals and Group
 Condition: Exceptional circumstances, approval of board, disclosures
in Annual Report
 25% + 5%
 Condition: Oil companies with GOI Oil Bonds
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11. NBFCS
9/19/2012
 Exposure Ceiling Limits
 NBFC – 10%
 NBFC – AFC – 15%
 Infrastructure Finance Companies – 15%
 Extensions
 Additional 15% - NBFC, Additional 20% - NBFC (AFC),
Up to 20% - IFCs
 Condition: Lent to infrastructure sector
 Banks should set internal credit limits for all NBFCs
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12. BILLS DISCOUNTED UNDER LC
9/19/2012
 Discounting/purchasing/negotiating bank
 Exposure to LC Issuing Bank
 LC Issuing Bank
 Exposure to Borrower
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13. EXEMPTIONS
9/19/2012
 Rehabilitation of Sick/Weak Industrial Units
 Food Credit
 Guarantee by GOI
 Loans against own Term Deposits
 Exposure on NABARD
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14. EXPOSURE TO INDUSTRY/CERTAIN SECTORS
9/19/2012
 Internal Exposure Limits
 Fixing of Sectoral Limits
 Foreign Currency Exposure
 Foreign currency loans > USD 10 mio, policy for appropriate
limits to be set
 Exporter
 SMEs
 Monthly review and monitoring unhedged portion of exposure
> USD 25 mio
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15. EXPOSURE TO INDUSTRY/CERTAIN SECTORS
9/19/2012
 Exposure to Real Estate
 Frame comprehensive prudential norms
 Exposure to SEZs or for acquisition of units ins SEZs
which includes real estate will be treated as exposure to
commercial real estate sector for the purpose of risk
weight and capital adequacy
 Exposure to Leasing, Hire Purchase and Factoring
Services
 Should not exceed 10 % of total advances
15

16. EXPOSURE TO INDUSTRY/CERTAIN SECTORS
9/19/2012
 Exposure to Indian JVs/Wholly owned subsidiaries
Abroad and Overseas Step-down Subsidiaries of
Indian Corporates
 Exposure by way of credit and non credit finance for
facilitating exports should not exceed 20% of banks’
unimpaired capital funds
16

17. EXPOSURE TO CAPITAL MARKETS
9/19/2012
 Banks’ capital market exposure includes both direct
and indirect exposures on the various components
of capital market such as direct investment in equity
shares, convertible debentures, advances against
shares/bonds/debentures, and etc. secured and
unsecured advances to stock brokers and
guarantees issued on behalf of them, etc.
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18. EXPOSURE TO CAPITAL MARKETS
9/19/2012
 Irrevocable Payment Commitments (IPCs)
 Banks issue Irrevocable Payment Commitments (IPCs)
in favour of stock exchanges on behalf of domestic
mutual funds/FIIs to facilitate the transactions done by
these clients
 It is a financial guarantee
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19. LIMITS ON EXPOSURE TO CAPITAL MARKETS
9/19/2012
 Statutory Limits
 No banking company shall hold shares in any company,
whether as pledgee, mortgagee or absolute owner, of
an amount exceeding 30 percent of the paid-up share
capital of that company or 30 percent of its own paid-up
share capital and reserves, whichever is less (Section
19(2) of the B.R. Act, 1949)
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20. LIMITS ON EXPOSURE TO CAPITAL MARKETS
9/19/2012
 Regulatory Limit (Solo/Consolidated Basis)
 The aggregate exposure of a bank/consolidated bank to
the capital markets should not exceed 40 per cent of
its net worth/consolidated net worth as on March 31
of the previous year. Within this overall ceiling, the
bank’s direct investment/aggregate direct exposure by
way of consolidated investment in shares, convertible
bonds / debentures, units of equity-oriented mutual
funds and all exposures to Venture Capital Funds
(VCFs) [both registered and unregistered] should not
exceed 20 per cent of its net worth/consolidated net
worth
20

21. ITEMS EXCLUDED FROM CAPITAL MARKETS
EXPOSURE
9/19/2012
 Banks’ investments in own subsidiaries, joint ventures,
sponsored Regional Rural Banks (RRBs) and investments in
shares and convertible debentures, convertible bonds issued
by institutions forming crucial financial infrastructure as listed
out in the RBI Circular.
 Tier I and Tier II debt instruments issued by other banks;
 Investment in Certificate of Deposits (CDs) of other banks;
 Preference Shares, Non-convertible debentures and non-
convertible bonds;
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 Units of Mutual Funds under schemes where the corpus is
invested exclusively in debt instruments;

22. ITEMS EXCLUDED FROM CAPITAL MARKETS
EXPOSURE
9/19/2012
 Shares acquired by banks as a result of conversion of
debt/overdue interest into equity under Corporate Debt
Restructuring (CDR) mechanism;
 Term loans sanctioned to Indian promoters for
acquisition of equity in overseas joint ventures / wholly
owned subsidiaries under the refinance scheme of
Export Import Bank of India (EXIM Bank).
 Own underwriting commitments, as also the
underwriting commitments of their subsidiaries, through
the book running process
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23. FINANCING OF EQUITIES AND INVESTMENT IN
SHARES
9/19/2012
No. Nature of Capital Market Other Restriction/Norms
Exposure
1 Advances against shares to Physical Form: Not to exceed Rs.
individuals (shares, convertible 10 Lakh
bonds, convertible debentures and Demat Form : Not to exceed Rs. 20
units of equity oriented mutual Lakh
funds)
2 Financing of Initial Public Offerings Not exceed : Rs.10 lakh (for
(IPOs) to individuals (shares, subscribing to IPOs)
convertible bonds/ debentures,
units of equity oriented mutual
funds and PSU bonds
3 Bank finance to assist employees To the extent of 90% of the
to buy shares of their own purchase
companies under Employees Stock price of the shares or Rs.20 lakh
Option Plan (ESOP)/ reserved by whichever is lower.
way of employees' quota under IPO
including Follow-on Public Offers 23
(FPOs)

24. FINANCING OF EQUITIES AND INVESTMENT IN
SHARES
No. Nature of Capital Market Exposure Other Restriction/Norms
9/19/2012
4 Advances against shares to Stock Banks are free to provide credit facilities
Brokers & Market Makers based on their commercial judgment, but
do not extend credit facilities directly or
indirectly for arbitrage operations
5 Bank financing to individuals against Finance should not be to circumvent the
shares to joint holders or third party limits placed on loans/advances against
Beneficiaries shares and other securities specified
above
6 Advances against units of Mutual Funds Subject to:-
*units listed in the Stock Exchange
*completed the minimum lock-in period
(relevant scheme)
*linked to Net Asset Value
(NAV)/repurchase price or the market
value whichever is less;
*attract the quantum and margin
requirements; 24
*purpose oriented

25. FINANCING OF EQUITIES AND INVESTMENT IN
SHARES
9/19/2012
No. Nature of Capital Market Other Restriction/Norms
Exposure
7 Advances to other borrowers Can accept as collateral for
against secured loans granted as
shares/ debentures/ bonds working capital or for other
productive purposes or margin
for new projects or expansion
of existing business
8 Bank Loans for financing Individual : 15% of capital funds
promoters’ Group : 40% of capital funds
contribution And subject to the Statutory
limit on share holding in
companies (Sec. 19(2) of B.R.
Act 1949
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9 Bridge Loans Period not exceeding one year

26. FINANCING OF EQUITIES AND INVESTMENT IN
SHARES
9/19/2012
No. Nature of Capital Market Other Restriction/Norms
Exposure
10 Investments in Venture Capital It should not exceed 20% within the
Funds capital market exposure norm of
(VCFs) 40% of the net worth as on March
31st of previous year
11 Margin on advances against Uniform margin of 50% of which
shares / issue of guarantees on minimum cash margin of 25%
behalf of stockbrokers and
market makers
12 Disinvestment Programme of Within the regulatory ceiling of 40%
GOI of net worth. Relaxation, on case to
case basis, is permitted to banks in
such a manner that the total capital
exposure, net of exposure under the
disinvestment programme, is within
the regulatory/ prudential individual/ 26
group exposure ceiling

27. FINANCING OF EQUITIES AND INVESTMENT IN
SHARES
No. Nature of Capital Market Other Restriction/Norms
9/19/2012
Exposure
13 Financing for acquisition of Statutory limit on share holding in
equity in Overseas companies (Sec. 19(2) of B.R. Act
companies 1949
14 Refinance Scheme of Export Approval of the EXIM Bank for
Import Bank of India refinance
15 Arbitrage Operations Banks prevented from undertaking
arbitrage operations themselves
and
extending credit facilities for the
purpose
16 Margin Trading Minimum margin 50% and the
shares should be in 27
dematerialized
mode

28. RISK MANAGEMENT AND INTERNAL CONTROL
SYSTEMS
9/19/2012
 Transparent policy
 Investment committee
 Suitable Risk Management Mechanism
 Suitable Audit committee
 Valuation and Disclosure
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29. CROSS HOLDING AMONG BANKS/FINANCIAL
INSTITUTIONS
9/19/2012
 Capital Status(should not exceed 10% of investing
bank’s capital funds)
 Equity shares;
 Preference shares eligible for capital status;
 Subordinated debt instruments;
 Hybrid debt capital instruments; and
 Any other instrument approved as in the nature of
capital
 Subject to 5% of investee banks equity capital
 Outside the purview of ceiling prescribed
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30. MARGIN REQUIREMENTS
9/19/2012
 Banks exposure to commodity markets
 Banks exposure in respect of currency derivative
segment
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31. LIMITS ON EXPOSURE TO UNSECURED
GUARANTEES AND UNSECURED ADVANCE
9/19/2012
 Formulate own policies
 The rights, licenses, authorizations, etc., charged to the
banks as collateral in respect of projects (including
infrastructure projects) financed by them, should not be
reckoned as tangible security for the purpose of
determining the amount of unsecured advances.
 Annuities under build-operate-transfer (BOT) model in
respect of road/highway projects and toll collection
rights where there are provisions to compensate the
project sponsor if a certain level of traffic is not
achieved, as tangible securities, subject to the condition
that banks’ right to receive annuities and toll collection
rights is legally enforceable and irrevocable.
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32. THANK YOU