The RBI's framework capping how much a bank may be exposed to a single counterparty or to a group of connected counterparties, expressed as a percentage of the bank's eligible capital base.
Commonly abbreviated LEF. It gives effect in India to the Basel Committee’s standard on measuring and controlling large exposures.
The core limits
The framework works off Tier 1 capital as the eligible capital base, and applies at all times rather than only at period ends.
- Exposure to a single counterparty is capped at 20% of the bank’s eligible capital base, with the bank’s board able to permit an additional buffer up to 25% in exceptional circumstances.
- Exposure to a group of connected counterparties is capped at 25% of the eligible capital base.
An exposure is separately defined as a large exposure, and becomes reportable, once the sum of all exposure values to a counterparty or connected group reaches 10% of the eligible capital base.
Exposure here is measured on both the banking and trading book and on both on- and off-balance-sheet items. The framework took effect on 1 April 2019, with the economic-interdependence criteria applying from 1 April 2020. The framework’s own text is the authority on the definitions, the connected-counterparty control and economic-dependence tests, and the exemptions.
Why it matters for reading exposure data
Two implications are worth carrying.
It is a limit on the lender, not on the borrower. The cap constrains how concentrated one bank may become, which is why a large borrower is structurally likely to be spread across several lenders — through consortium lending or multiple banking — rather than funded by one.
It creates a reporting obligation. Large exposures are reported to the RBI, and reporting on borrowers with aggregate exposure of ₹5 crore and above runs through CRILC. That data is supervisory and its access is confined to RBI-regulated institutions.
What it is not
The framework governs a bank’s own exposure limits and reporting. It is not a public disclosure regime, and nothing in it makes a bank’s counterparty list public.
Related
- Consortium lending — one way a large borrower is spread across lenders
- Multiple banking — the other
- SMA classification — the stress bands reported through the same channel
- What CRILC is
- Glossary index