Group exposure guidelines beneficial to Indian banks: Moody's

The Reserve Bank of India released draft guidelines to limit banks' exposure to their own group non-financial and financial entities.

As per Moody's, the proposed rules would hurt companies that depend on parent banks for capital and brand support, particularly those with large international operations, or those that operate insurance, securities or asset management businesses that need capital and liquidity support to meet their business needs.

"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," Moody's Investors Service said in a report.

"The guidelines would lead these banks to re-examine the financial support they provide to group businesses as anything exceeding the stipulated limits would be detrimental to their standalone capital calculations and thus their business growth," Moody's said.

The rules, it said, would benefit India's banks because they would reduce their concentration and contagion risks from group activities.

The guidelines, if implemented, would limit to 5 per cent of paid-up capital and reserves a bank's exposure to a single group non-financial entity, while the maximum exposure to regulated financial services companies would be 10 percent.

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