RBI tweaks exposure framework for banks, introduces economic inter-dependence criteria

The Reserve Bank of India (RBI) has made changes in guidelines on large exposures framework for banks to reduce the concentration of risk and align them with global norms.

The revised framework provides exclusion of entities connected with the sovereign from the definition of the group of connected counterparties. It introduces economic interdependence criteria in the definition of connected counterparties.

As per the revised norms, the sum of all the exposure values of a bank to a single counterparty must not be higher than 20 per cent of the bank's available eligible capital base at all times.

In exceptional cases, a board of banks may allow an additional five per cent exposure of the bank's available eligible capital base, the RBI said in a statement on Monday.

In case of groups of connected counterparties, the sum of all the exposure values of a bank to a group of connected counterparties must not be higher than 25 per cent of the bank's available eligible capital base at all times, it said.

Under the revised framework, exposure to a counterparty will constitute both on and off-balance sheet exposures included in either the banking or trading book and instruments with counterparty credit risk.

On exposures to non-banking financial companies (NBFCs), banks' exposures to a single NBFC will be restricted to 15 per cent of their eligible capital base. However, based on the risk perception, more stringent exposure limits in respect of certain categories of NBFCs may be considered.

Banks' exposures to a group of connected NBFCs or group of connected counterparties having NBFCs in the group will be restricted to 25 per cent of their tier-I capital, the central bank said.