Large Exposures Framework (LEF) is an RBI regulation designed to limit the concentration of credit risk in the banking system. It ensures that banks do not take excessively large exposures to a single borrower or a group of connected borrowers.
It aligns India with the Basel Committee on Banking Supervision (BCBS) global standards on large exposures.
Objectives of LEF
- Reduce systemic risk from large borrower defaults
- Prevent excessive concentration of lending
- Ensure banks diversify their credit portfolios
- Strengthen overall financial stability
Key Definitions
Exposure
Includes funded, non-funded credit limits, derivatives exposure, off-balance-sheet items, and investments in securities.
Connected Counterparties
Two or more borrowers treated as a single counterparty if they are interconnected through:
- Control (ownership, voting rights, management)
- Economic interdependence (common sources of funds, guarantees, group dependence)
Exposure Limits under LEF
1. Single Counterparty Exposure Limit
- 20% of a bank’s Tier-1 capital
- RBI may allow up to 25% for certain banks in specific conditions.
2. Group of Connected Counterparties
- 25% of a bank’s Tier-1 capital
- Can be raised to 30% by RBI in exceptional cases.
3. Exposure to NBFCs
- Banks may have exposure up to 25% of Tier-1 capital (Prudential norms announced earlier).
4. Exceptions
Certain exposures are exempt from LEF, such as:
- Exposure to Government of India
- Exposure backed by equivalent cash margins or government guarantees
- Intraday interbank exposures
Recent Update: Withdrawal of 2016 Large Borrower Framework
In December 2025, RBI scrapped the old 2016 guidelines that required large borrowers to raise a portion of their borrowings through the corporate bond market.
- Industry feared bond market volumes would fall.
- RBI clarified volumes are strong due to broader reforms; old rules added costs.
This affects how banks manage exposures under LEF but does not dilute LEF limits, which remain fully in force.
LEF Applicability to Foreign Banks
Foreign banks operating in India (branches of overseas banks) must also comply with LEF based on their India operations only.
1. Exposure Limit Calculation
For foreign banks, the limit is calculated using:
- Tier-1 capital / net owned funds in India, not the global balance sheet.
2. Group-Level Limits
Even if the global parent finances the same borrower elsewhere, only India books count towards LEF.
3. No Exemptions for Foreign Banks
Foreign banks must follow the same exposure caps as domestic banks, except for:
- Foreign sovereign exposures (e.g., home-country government bonds) are exempt outside India but not relevant for India books.
- Branch-level exposures in India cannot exceed LEF limits even if the parent guarantees it.
4. Exposure Aggregation
All Indian branches of a foreign bank are treated as a single entity.
Example:
If a foreign bank has 3 branches in India, their combined exposure to Reliance Group must stay within the 25% group exposure limit.
5. Special Case: Interbank Exposures
Foreign banks with large corporate treasuries often rely on:
- Interbank exposure
- Nostro/Vostro balances
- Forex derivatives
Intraday exposures are exem
