The Reserve Bank of India (RBI) recently issued amendments to Large Exposures Framework (LEF) and Intragroup Transactions and Exposures, after it reviewing the feedback received on the draft. As per the amended guidelines, the RBI has decided to treat an Foreign Bank operating in India as branch’s exposures only towards its HO and the branches of its HO (i.e. within the same legal entity) under the LEF, while exposures to other distinct legal entities of the Group, including those towards the subsidiaries of the immediate HO, shall be under the Intragroup Transactions and Exposures (ITE). 

Further, as per RBI, in the absence of explicit legal ring-fencing between a FBB and its HO, it has been decided to retain the draft proposal and reckon such exposures only on gross basis. The amendments also said that banks shall have policies on Concentration Risk Management of their exposures towards a single counterparty, groups of interconnected counterparties, specific sectors of the economy as also systems to monitor and address the risks emanating to them from their exposures to ultra-large borrowers who are excessively leveraged and have substantial borrowings from the banking system. While banks can have their own criteria for deciding an ultra-large borrower, they shall take into account inter alia the overall borrowings of such entities from the banking system for credit assessment of such borrowers.

 

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