State Bank of India has breached its prudential exposure limits (for single borrowers) for three clients during 2010-11.

According to information provided in its annual report for 2010-11, the three clients are Reliance Industries, BHEL and Indian Oil Corporation.

Banks, as a measure of risk management, are required by the regulator to limit their exposure to borrowers (either individual companies or as part of a corporate group) to a certain percentage of their net worth. This is done, so as to keep a check on credit concentration in the hands of a few borrowers and consequent risks for the bank.

The limits

The RBI has, therefore, fixed a limit of 15 per cent of a bank's capital funds in the case of single borrowers, while in the case of group borrowers the limit is fixed at 40 per cent of the bank's capital funds.

Banks are allowed to exceed this limit by 5 percentage points in the case of single borrowers and 10 percentage points in the case of group borrowers where such lending is for infrastructural projects.

For oil companies, the limit is fixed at a higher level of 25 per cent. Banks are allowed to exceed the prescribed limits only in exceptional cases provided there is sanction from the board of directors and the borrowers consent to being named in the annual report for such excess borrowing.

According to its annual report, SBI had an exposure ceiling of Rs 13,646 crore for Reliance Industries in the first quarter of last fiscal, but exceeded this limit by about Rs 2,170 crore.

The exposure limits were revised upwards to Rs 14,222 crore by November 2010, but the limit was again exceeded by about Rs 1,230 crore. But by March-end, the total amount outstanding was brought down to Rs 5,645 crore.

Interestingly, State Bank had breached its exposure limits for the same three clients in the previous fiscal too.

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