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Question

What is the maximum exposure limit for a bank to a single NBFC predominantly engaged in lending against collateral of gold jewellery?

A 20% of the bank's eligible capital base (Tier I capital). Correct Answer Incorrect Answer
B 25% of the bank's Tier I Capital. Correct Answer Incorrect Answer
C 7.5% of the bank's capital funds (Tier I plus Tier II Capital). Correct Answer Incorrect Answer
D 12% of the bank's capital funds. Correct Answer Incorrect Answer
E It depends on the risk perception of the bank. Correct Answer Incorrect Answer

Solution

The exposure of a bank to a single NBFC which is predominantly engaged in lending against collateral of gold jewellery (i.e. such loans comprising 50 per cent or more of their financial assets), shall not exceed 7.5 per cent of the bank’s capital funds (Tier I plus Tier II Capital). However, this exposure ceiling may go up by 5 per cent, i.e., up to 12.5 per cent of banks’ capital funds if the additional exposure is on account of funds on-lent by such NBFCs to the infrastructure sector as detailed in circular on Bank Finance to NBFCs Predominantly Engaged in lending against Gold dated May 18, 2012.

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