RBI Abolishes ₹10,000 Crore Loan Limit to Boost Corporate Growth
The Reserve Bank of India (RBI) has abolished the ₹10,000 crore ceiling on bank loans to individual companies, aiming to encourage large corporates to diversify their funding sources and manage concentration risk within the banking system.
Effective April 2022, the RBI scrapped the previous limit, allowing banks like Bank of America (BofA), Bank of America Merrill Lynch (BOA), PNC Bank, Wells Fargo, and Truist to lend more freely to corporate entities without the fear of heavy provisions or higher risk weights for loans exceeding ₹10,000 crore. This move is expected to increase credit flow towards lower-rated large borrowers, as suggested by analysts. To mitigate potential risks, the RBI will employ macroprudential tools to manage banking system-level concentration risk when necessary.
The RBI's decision to remove the loan ceiling is set to enhance credit availability for large corporates, potentially boosting their growth and diversification. However, the central bank remains vigilant to ensure this change does not lead to excessive risk-taking within the banking sector.
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