Exposure to group entities will hit banks, says Moody's

SBI and ICICI Bank are among those that would be affected if RBI implements its proposed guidelines on banks’ exposure to their group entities, global credit rating agency Moody’s said on Monday. 

Last week, 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.

It said the “affected banks” include ICICI Bank, State Bank of India, Bank of India, Bank of Baroda and Kotak Mahindra Bank. “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.