Kirvanta Bank's exposure to one business group has crept above the large exposure limit. Measure the breach and choose between selling down, taking collateral and raising capital.

Kirvanta is at 26.7% of Tier 1 against a 25% limit, Rs 200 crore over. Selling Rs 200 crore of exposure or taking about Rs 211 crore of eligible collateral cures it; raising capital needs Rs 800 crore, four times the excess, and takes months. Sell down the bonds first, freeze new lending to the group, and aim below the line, not on it.

Add every rupee that disappears if the group fails, wherever it sits in the bank. Think of a friend who owes you money, has borrowed your car and asked you to stand surety for a flat: if they vanish, you lose on all three at once. Loans, bonds and guarantees to one group are one exposure, because one default hits all of them together. Rs 2,000 plus 700 plus 500 is Rs 3,200 crore, which is 26.7% of Rs 12,000 crore. The limit is Rs 3,000 crore, so the excess is Rs 200 crore.

Group means the connected counterparties together: companies under common control, or so economically dependent that one cannot fail alone. That is why the three group companies are added, not tested one by one. The point of a large exposure limitA cap on how much a bank can lose to one borrower or connected group, set as a share of its capital, so a single failure cannot sink the bank. is that no single failure should be able to take out a quarter of the bank's loss-absorbing capital.

Because capital sits under the line of the ratio and exposure sits above it. Each rupee of new Tier 1 makes room for only 25 paise of exposure, so a Rs 200 crore excess needs Rs 800 crore of capital. Raising that much also takes a board decision, shareholder approval and months of market work, and nobody raises equity to accommodate one client. The capital route belongs in the answer only to be ruled out with a number.

Start with the Rs 700 crore of group bonds in the treasury book. Bonds are the fastest exposure to shrink because they can be sold in the market without renegotiating anything with the client. Selling Rs 200 crore of them cures the breach in days. Collateral is the second line: if the group can pledge government securities against part of the loans, about Rs 211 crore at a 5% haircut removes the same Rs 200 crore of exposure, but only if the collateral meets the rule's eligibility tests.

Then say what a sell-down to exactly 25% leaves: no headroom. A guarantee called, a bond revalued or one more drawdown puts the bank back in breach next week. Most banks run an internal ceiling a few points under the regulatory one for this reason. Close with the process: freeze new group exposure, report the breach under the bank's escalation policy, and agree a dated plan to get below the internal ceiling.