Restricting lending limits for large borrowers 'laudable': SBI

Restricting lending limits for large borrowers will clearly help the banks to reduce their NPA levels going forward, an SBI research report has said while lauding the draft RBI guidelines in this regard.

The absence of an overarching ceiling on total bank borrowing by a corporate from banking system has resulted in banks ending with very high exposures to some large groups.

The proposed 'Framework for enhancing Credit Supply for Large Borrowers through the Market Mechanism', has suggested that the banking system should ordinarily keep its future incremental exposure to specified borrowers within the normally-permitted lending limit (NPLL).

"The objective of the draft guidelines by RBI restricting lending limits for large borrowers are laudable as to help the banking industry in terms of reducing concentration risk," as per a report by SBI's economic research department.

"Going forward, this will clearly help the banks to reduce their NPA levels," it added.

The report however, said there are some "lingering concerns" regarding these guidelines.

"This move by RBI thus may increase the size of Indian corporate bond market by say only 1 per cent of GDP from the current 17.8 per cent of GDP and will not achieve the desired objective," it said.

There may also be a big funding gap for infrastructure sector going forward.

"We believe this may not be the right way to develop the corporate market in India, which is at a nascent state due to a number of issues, and there may be a big funding gap for infrastructure sector going forward," the report added. PTI DRR ADI .