HDFC Bank breaches RBI limits on loans to Reliance Industries

Leading private sector lender HDFC Bank has “exceeded” the single-borrower limits prescribed by regulator RBI in case of its credit exposure to corporate giant Reliance Industries Ltd (RIL).
The bank, however, said its board of directors approved “the said excess in respect of this exposure” and it was within the 20 per cent ceiling of capital funds.
The central bank has fixed the credit exposure ceiling of a bank at 15 per cent of capital funds in case of a single borrower and at 40 per cent in case of a borrower group.
The RBI allows banks to enhance this exposure by further 5 per cent of capital funds in exceptional circumstances, with approval of their boards.
Without disclosing the exact amount of the exposure to Mukesh Ambani-led RIL, HDFC Bank said, “During the year ended March 31, 2015 the bank’s credit exposures to single borrowers and group borrowers were within the limits prescribed by the RBI except in case of Reliance Industries Limited, where the single borrower limits were exceeded.”
The Aditya Puri-led bank further said it had not exceeded these limits in the previous fiscal 2013-14.
Queries mailed to the bank’s spokesperson in this regard remained unanswered.
Incidentally, some other top lenders including private sector rival ICICI Bank and state-run SBI have also breached the RBI’s prudential limits in terms of their credit exposure to RIL in the past.
However, ICICI Bank has not breached these norms for four consecutive years now, including in the latest fiscal 2014-15.
SBI said it “had taken single borrower exposure in excess of prudential limits” in cases of three borrowers — Indian Oil, BHEL and Reliance Industries — during 2013-14, but this was within the discretion given by the RBI for additional 5 per cent exposure above the prudential limits.
SBI is yet to make any such disclosures for the last fiscal 2014-15.
The RBI’s permission to banks exceeding the prudential limits by up to 5 per cent, with approval of their boards, is “subject to the borrower consenting to the banks making appropriate disclosures in their Annual Reports.”
Making this disclosure, HDFC Bank has said in its latest Annual Report, “The Board of Directors of the bank approved the said excess in respect of this exposure, which was within the ceiling of 20 per cent of capital funds.”
“During the year ended March 31, 2014, the bank’s credit exposures to single borrowers and group borrowers were within the limits prescribed by RBI,” HDFC Bank said in the Report, which has been sent to its shareholders ahead of their AGM on July 21.
The bank’s net advances grew by 20.6 per cent in the last fiscal to Rs 3,65,495 crore, while its balance sheet saw an increase of over 20 per cent to Rs 5,90,503 crore.
RIL’s long-term borrowings rose to Rs 76,227 crore in the fiscal 2014-15, while its short-term borrowings actually fell to Rs 12,914 crore during the year. A major portion of its long-term borrowings included term loans from banks.
RBI’s credit exposure norms also allow banks to exceed the single borrower limit by an additional 5 per cent and the group borrower limit by 10 per cent in case of such additional exposure being on account of credit given to infrastructure projects.
Besides, the RBI has allowed the single borrower exposure limit of up to 25 per cent in case of oil companies who have been issued Oil Bonds (which do not have SLR status) by Government of India.
However, banks are required to make appropriate disclosures in the ‘Notes on account’ to the annual financial statements in respect of the exposures where they had exceeded the prudential exposure limits during the year.