The Reserve Bank of India's (RBI's) move to limit banks' exposure to their own group financial and non-financial entities will hurt group companies, global credit rating agency Moody's warned.
If implemented, the guidelines would limit to 5% of paid-up capital and reserves of a bank's exposure to a single group non-financial entity. The maximum exposure to a regulated financial services company would be 10%.
According to Moody's, State Bank of India, Bank of India, Bank of Baroda, Kotak Mahindra Bank and ICICI are among the financial institutions that would be affected by the proposed guidelines.
The proposed guidelines will particularly affect those companies which depend on parent banks for capital and brand support, mainly those with huge international operations.
Companies dealing in securities, insurance or asset management businesses that require liquidity support to meet their business requirements.
However, the global credit rating agency also said that the new guidelines would be credit positive for Indian banks.
In a recent report, Moody's Investors Service said, "If the RBI adopts them, the new guidelines would be credit positive for India's banks, but credit negative for group companies that rely on parent banks for capital and brand support."
The new guidelines in question would force the potentially affected banks to reconsider the financial support they offer to group companies as anything beyond the set limits would hurt their standalone capital calculations and thus the growth of businesses.
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