RBI Revises Large Exposures Framework for Banks
RBI has introduced certain amendments to the large exposures framework, which went into effect on April 01, 2019. Annex to the circular contains the revised guidelines, which supersede any earlier circulars that have been issued. The guidelines in the framework have come into effect from April 01, 2019 (as specified in a circular dated December 01, 2016), except guidelines in respect of paragraph 2(ii) (contained in paragraphs 6.2(b), 6.7, 6.8, 6.9, and 6.10 of the Annex) and non-centrally cleared derivatives exposures, which will become applicable with effect from April 01, 2020.
The recent amendments capture exposures and concentration risk more accurately and align the instructions with international norms. The amendments include the following:
- Exclusion of entities connected with the sovereign from definition of group of connected counterparties
- Introduction of economic interdependence criteria in definition of connected counterparties
- Mandatory application of look-through approach in determination of relevant counterparties, in case of collective investment undertakings, securitization vehicles, and other structures
Banks must apply the large exposures framework at the same level as the risk-based capital requirements are applied—that is, a bank shall comply with the norms at both the consolidated (Group) and solo levels. The application of the framework 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 counterparties and compare the aggregate of those exposures with the banking group’s eligible consolidated capital base. Appendix 1 for the large exposures framework contains the reporting template for large exposures. The reporting template covers the following:
- All exposures, measured as specified in paragraphs 7, 8, 9 and 10 of this framework, with values equal to or above 10% of the bank’s eligible capital (that is, meeting the definition of a large exposure as per para 4.1 above)
- All other exposures, measured as specified in paragraphs 7, 8, 9 and 10 of this framework without the effect of credit risk mitigation, with values equal to or above 10% of the bank’s eligible capital base
- All the exempted exposures (except intraday inter-bank exposures) with values equal to or above 10% of the bank’s eligible capital base
- Twenty largest exposures included in the scope of application, irrespective of the values of these exposures, relative to the bank’s eligible capital base
Effective Date: April 01, 2019/April 01, 2020
Keywords: Asia Pacific, India, Banking, Large Exposures, Concentration Risk, Basel III, Credit Risk, RBI
Featured Experts

María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer

Pierre-Etienne Chabanel
Brings expertise in technology and software solutions around banking regulation, whether deployed on-premises or in the cloud.

Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Previous Article
Howard Lee of HKMA Speaks on Challenges in Benchmark Rate TransitionRelated Articles
BIS Innovation Hub Sets Out Work Program for 2021
BIS Innovation Hub published the work program for 2021, with focus on suptech and regtech, next-generation financial market infrastructure, central bank digital currencies, open finance, green finance, and cyber security.
EC Plans to Consult on Crisis Management and EDIS Framework Revisions
In an article published by SRB, Mairead McGuinness, the European Commissioner for Financial Services, Financial Stability, and Capital Markets Union, discussed the progress and next steps toward completion of the Banking Union.
EBA Finalizes Remuneration Standards for Investment Firms in EU
EBA finalized the two sets of draft regulatory technical standards on the identification of material risk-takers and on the classes of instruments used for remuneration under the Investment Firms Directive (IFD).
ECA Recommends Actions to Enhance Resolution Planning for Banks
EC published, in the Official Journal of the European Union, a notification that the European Court of Auditors (ECA) has published a special report on resolution planning in the Single Resolution Mechanism.
BoE Publishes Key Elements of the 2021 Stress Testing for Banks in UK
BoE published a scenario against which it will be stress testing banks in 2021, in addition to setting out the key elements of the 2021 stress test, guidance on the 2021 stress test, and the variable paths for the 2021 stress test.
PRA Proposes Rules on Identity Verification of Depositor Protection
PRA published a consultation paper (CP3/21) proposes rules regarding the timing of identity verification required for eligibility of depositor protection under the Financial Services Compensation Scheme (FSCS).
FSB Publishes Work Program for 2021
FSB published the work program for 2021, which reflects a strategic shift in priorities in the COVID-19 environment.
FCA Issues Update on Move to New Data Collection Platform
FCA announced that 50% firms have started using the new data collection platform RegData, which is slated to replace the existing platform known Gabriel.
Bundesbank Publishes Derivation Rules for Reporting by Banks
Bundesbank published Version 5.0 of the derivation rules for completeness check at the form level, with respect to the data quality of the European harmonized reporting system.
FED Revises Capital Planning and Stress Testing Requirements for Banks
FED finalized a rule that updates capital planning requirements to reflect the new framework from 2019 that sorts large banks into categories, with requirements that are tailored to the risks of each category.