RBI issues final guidelines on large exposure framework

Sum of all the exposure values of a bank to a single counter-party must not be higher than 20% of the bank's available eligible capital base at all times, says RBI

The RBI on Thursday issued final norms for banks' exposure to large companies and said lender's total advances to a single company cannot be higher than 20% of its capital base.

The new norms will should be implemented by March 31, 2019, RBI said.

"The sum of all the exposure values of a bank to a single counter-party must not be higher than 20% of the bank's available eligible capital base at all times," RBI said in the final guidelines on Large Exposure Framework (LEF).

However, in exceptional cases, board of banks may allow an additional 5% exposure of the bank's available eligible capital base.

"The sum of all the exposure values of a bank to a group of connected counter-parties must not be higher than 25% of the bank's available eligible capital base at all times," RBI said, adding banks must lay down a board approved policy in this regard.

The framework said any breach of the limits shall be under exceptional conditions only and shall be reported to RBI immediately and rectified at the earliest but not later than a period of 30 days from the date of the breach.

The guidelines said banks must apply these exposure at the same level as the risk-based capital requirements are applied, that is, a bank shall comply with the these norms at two levels the consolidated level and solo level.

The application of LEF at the consolidated level implies that a bank must consider exposures of all the banking group

entities (including overseas operations through branches and subsidiaries), which are under regulatory scope of consolidation, to counter-parties and compare the aggregate of those exposures with the banking group's eligible consolidated capital base.

Under the proposed LEF, an exposure to a counter-party will constitute both on and off-balance sheet exposures included in either the banking or trading book and instruments with counter-party credit risk.