A bank’s exposures to its counterparties may result in concentration of its assets to a single counterparty or a group of connected counterparties. In order to address this concentration risk, the RBI, suitably adopting the supervisory guidance of the Basel Committee on Banking Supervision on large exposures and the principles contained in their publications on the Core Principles for Effective Banking Supervision of October 2006 (since revised in September 2012) and the standards on ‘Supervisory framework for measuring and controlling large exposures’ of April 2014 in the Indian context, issued instructions on banks’ large exposures, called the ‘Large Exposures Framework’. The RBI on February 24, 2021 introduced another exemption to the Large Exposures Framework, viz. exposures to foreign sovereigns or their central banks that are:

i.     subject to a 0% risk weight under Table 2 of paragraph 5.3.1 of the Master Circular – Basel III Capital Regulations dated July 1, 2015, as modified by way of Circular dated October 8, 2015; and

ii.    denominated in the domestic currency of that sovereign and met out of resources of the same currency.

Please refer to our previous updates circulated in July 2019 here and September 2019 here in relation to the Large Exposures Framework issued by the RBI.