Credit Exposure Limits for Quasi-Banks (QBs)
- Similar 25% limit on total liabilities to a single borrower based on combined capital accounts.
- Applies also to project finance loans to SPEs, with the same conditions as banks.
- Compliance with large exposure and credit risk concentration rules is required.
Loans to Subsidiaries and Affiliates
- Total loans, credit accommodations, and guarantees to subsidiaries/affiliates capped at 10% of the lending bank's net worth.
- Project finance loans to SPE subsidiaries/affiliates have a 25% limit with a maximum unsecured portion of 12.5% when operational.
- Such loans must align with government priority projects and be subject to prudential controls.
- Subsidiaries/affiliates must not be related interests of certain officers or stockholders.
- Aggregate limits for related party transactions apply.
Exclusions from Loan Limits
- Non-risk credit exposures are excluded, including:
- Loans secured by government obligations or U.S. Treasury notes.
- Loans fully guaranteed by the government.
- Loans covered by deposit assignments or hold-outs.
- Loans to foreign embassies (deemed as loans to their central governments).
- Other exposures specified by the Monetary Board.
- Certain loan accommodations, underwriting results, and foreign securities lending are also excluded.
Procedures and Prudential Requirements
- Lending banks/QBs must implement safeguards such as:
- Pledge of borrower’s shares.
- Assignment of borrower’s assets.
- Assignment of revenues and cash waterfall accounts.
- Assignment of project documents.
- Limits on project finance loans must consider total exposures to manage large risk concentrations.
Effectivity
- The Circular takes effect 15 calendar days after publication in the Official Gazette or a newspaper of general circulation.
Key Legal Concepts
- Distinct credit limits exist for general and project finance exposures.
- Special provisions protect creditors’ interests in project finance loans.
- Emphasis on alignment with government priority projects.
- Clear differentiation of subsidiaries and affiliates in exposure limits.
- Specific exclusions reduce measured credit risk for compliance assessment.
- Harmonization with existing guidelines on large exposures and credit risk concentrations ensures systemic safety.