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Web Exclusive | March 2013

Panel for rising banks' sectoral cap for power sector

A proposal is being mooted for increasing the sectoral exposure limit of commercial banks and financial institutions to the power sector to 20 per cent so that liquidity can be channelised into the power sector.

The proposal is being discussed by high level committee on financing infrastructure headed by Deepak Parekh. Currently, according to Reserve Bank of India guidelines, the exposure ceiling limits of commercial banks to the power sector are 15 per cent of capital funds in case of a single borrower and 40 per cent for a borrower group.

The Finance Ministry representative has suggested to make a recommendation for increasing the sectoral exposure limit to 20 per cent.

He underlined the need for making adequate provisions for mitigating investors’ risks to augment investment in power sector, said a top official of a financial institution, who was present at the committee discussions on January 28. However, the decision to increase the sectoral cap has to be taken by the RBI. The Deepak Parekh-headed panel is expected to send its proposal to the Finance Ministry and RBI for consideration.

Short-term bank funding is primarily required to meet working capital needs of State Electricity Distribution Utilities (Discoms), generation companies and transmission companies.

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