With effect from
31/03/2005, The Bank have to make provision on its Net-Funded country
exposure only with respect to those countries where the exposure is 1%
or more of its total assets. The provision will be on exposure
Exposure to be
computed on net basis after deducting cash collaterals, guarantees/
insurances issued by countries in a lower risk category than the
country on which exposure is assumed.
risk such as loan exposure to a domestic borrower with large economic
dependence on a certain country is also to be considered at 50% of the
exposure for the purpose of CRM guidelines.
Banks may make a
lower level of provisioning i.e. 25% of the requirement in respect of
short-term exposures which are exposures with contractual maturity
period of less than 180 days.
The provision for
country risk shall be in addition to the provision required to be made
according to Asset Classification. Provisioning under country risk and
asset classification together may not exceed 100% of its outstanding.
Periodic review of
country risk should be at least once in a year. Till Banks evolve
their own risk assessment mechanism, ECGC's 7 fold country rating
system may be used.
Banks may treat
provisions held under country exposure at par with provisions for
standard assets for being reckoned as Tier-II Capital subject to the
ceiling of 1.25% of risk-weighted assets.
Banks may not make
any provision for 'home country' exposures i.e. exposure to India. The
exposures of foreign branches of Indian banks to the host country
should be included. Foreign banks shall compute the country exposures
of their Indian branches and shall hold appropriate provisions in
their Indian books. However, their exposures to India will be