April 01, 2019

RBI released a circular on the guidelines on large exposures framework for banks in India. The large exposures framework became effective from April 01, 2019. Banks must apply the large exposures framework at both the consolidated (Group) and solo levels.

According to the circular, after due consideration of the representations received from stakeholders, it has been decided as under:

  • Non-centrally cleared derivatives exposures will be outside the purview of exposure limits until April 01, 2020. However, banks must compute these exposures separately and report to the Department of Banking Regulation on quarterly basis.
  • For the purpose of reckoning exposure limits under large exposures framework, an Indian branch of a foreign global systemically important banks (G-SIB) will be considered as any other Indian bank and can accordingly take exposure up to 25% of its tier I capital on another non-GSIB in India.
  • The interbank exposure limit of an Indian branch of a foreign G-SIB with its Head Office will be 20% of its tier I capital in India.
  • The eligible capital base for the purpose of large exposures framework will be the effective amount of tier 1 capital fulfilling the criteria defined in the "Master Circular on Basel III – Capital Regulation" dated July 01, 2015 (as amended from time to time) as per the last audited balance sheet. However, the infusion of capital under tier I after the published balance sheet date may also be taken into account for the purpose of large exposures framework. Banks shall obtain an external auditor’s certificate on completion of the augmentation of capital and submit the same to RBI (Department of Banking Supervision) before reckoning the additions to capital funds.
  • For Indian banks, profits accrued during the year, subject to provisions contained in para 4.2.3.1 (vii) of "Master Circular on Basel III – Capital Regulation," will also be reckoned as tier I capital for the purpose of large exposures framework.
  • No additional time shall be given to banks that are in breach of specified interbank limits with other banks or with their Head Offices, to bring their exposures within limit.

To align the exposure norms for Indian banks with the BCBS standards, and based on comments and feedback received on the discussion paper on the large exposures framework, a draft large exposures framework was issued on August 25, 2016 for public comments. After examining the comments/feedback received from stakeholders on the draft proposals, final guidelines were issued in December 2016, with  April 01, 2019 being the effective date.

 

Effective Date: April 01, 2019

Keywords: Asia Pacific, India, Banking, Large Exposures, G-SIB, Tier 1 Capital, Basel III, Regulatory Capital, Credit Risk, Concentration Risk, RBI

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