RBI partly accepts suggestions on FBB exposures in LEF and ITE regimes

RBI said FBB exposures to head offices and their branches will fall under LEF, while exposures to other group entities move to the ITE framework, with gross calculation retained

The Reserve Bank of India (RBI) on Thursday clarified that only a foreign bank branch’s exposures to its head office (HO) and the HO’s branches will fall under the Large Exposures Framework (LEF), while all exposures to other distinct group entities, including subsidiaries of the head office, will be classified under the Intragroup Transactions and Exposures (ITE) framework.

 

How does the clarification differ from the draft guidelines? 

In the draft guidelines, the RBI had proposed that exposures of a foreign bank branch (FBB) to its head office, as well as to the head office’s branches and subsidiaries, be brought under the LEF, while exposures to other legally distinct group entities fall under the ITE framework.

 

What feedback did stakeholders give on the draft? 

According to the central bank, stakeholder comments on the proposal were diverse. While some suggested that all group exposures — including those to the HO — should be classified only under LEF, others recommended classifying them solely under ITE. A third view recommended applying LEF only for HO exposures and ITE for exposures to legally distinct group entities.

 

What did RBI decide on exposure calculation? 

The RBI said it will retain its draft proposal requiring that exposures arising from an FBB’s transactions with its HO, or any of the HO’s branches — whether cleared through a central counterparty (CCP) or otherwise — be calculated on a gross basis. Given the absence of explicit legal ring-fencing between an FBB and its HO, such exposures must continue to be reckoned without netting, the regulator said.