The Reserve Bank of India (RBI) has upped the absolute threshold limit for maximum aggregated retail exposure of banks to one counterparty to ₹7.5 crore from ₹5 crore.

This move is aimed at facilitating higher credit flow to the retail segment, which mainly consists of individuals and small businesses (with turnover of up to ₹50 crore).

This increased exposure limit is in respect of all fresh as well as incremental qualifying exposures, and is in harmonisation with the Basel guidelines.

“This measure is expected to expand credit flow to small businesses,” the RBI said.

Industry body FICCI, in a statement, said the decision to increase the exposure limits on individual retail loans will benefit both individuals and small businesses that are currently gasping for liquidity support to keep themselves afloat.

According to a report by State Bank of India’s Economic Research Department, the threshold limit is of ₹5 crore for retail exposure to one counterparty to qualify as Regulatory Retail Portfolio (RRP), which attracts risk weight of 75 per cent.

And above ₹5 crore, under standardised approach, the exposure shall be risk weighted as per the ratings assigned by the credit rating agencies registered with the SEBI and chosen by the Reserve Bank of India, the report Ecowrap said.

Soumya Kanti Ghosh, Group Chief Economic Adviser, SBI, said: “In order to reduce the cost of credit for this segment consisting of individuals and small businesses (that is with turnover of up to ₹50 crore), and in harmonisation with the Basel guidelines, the RBI has now increased this threshold to ₹7.5 crore in respect of all fresh as well as incremental qualifying exposures.

“If this would have been permitted on existing portfolio...additionally approximately ₹2-lakh crore might have been classified under RRP.”

Assuming presently 100 per cent risk weight for this amount, banks could, thus, have saved capital of around ₹5,000 crore on such existing portfolio, he added.

However, Ghosh felt that working capital limits such as Cash Credit/Overdraft may be allowed to be treated as new loan on renewal and accordingly can be classified under RRP.

“Considering 25 per cent to 50 per cent of the total outstanding as working capital limits, banks can, thus, still save capital of ₹1,250-2,500 crore,” he said.

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