34 SEBI & CORPORATE LAWS - MAGAZINE[Vol. 154
Committee
on
Banking
Supervision,
‘Supervisory
framework
for
measuring
and^
controlling
large
exposures’ 3
was
issued
by
the
said
Committee.
The
same
was^
adopted
by
the
RBI
in
respect
of
banks
in
India.
The
Large
Exposure
Framework
(LEF)
shall
be
applied
by
banks
at
group
level^
(considering
assets
and
liabilities
of
borrower
and
its
subsidiaries,
joint
ventures^
and
associates)
as
well
as
at
solo
level
(considering
the
capital
strength
and^
risk
profile
of
borrower
only).
Reporting of large exposures
As
per
the
LEF,
large
exposures
shall
mean
exposure
of
10 %
or
more
of
the
eligible^
capital
base
of
the
bank
in
a
single
counter-party
or
a
group
of
count
er-parties. -
The
same
shall
be
reported
to
Department
of
Banking
Supervision,
Central^
Office,
Reserve
Bank
of
India.Limit on large exposures
The
maximum
exposure
of
a
bank
in
a
single
counter-party
shall
not
be
more^
than
20 %
of
its
eligible
capital
base
at
any
time.
This
limit
shall
be
raised
to^
25 %
of
bank’s
eligible
capital
base
in
case
of
a
group
of
counter-parties.
Eligible
capital
base,
in
this
reference
shall
mean
the
aggregate
of
Tier
1
cap
ital -
as
defined
in
Basel
III- Capital
Regulation 4
as
per
the
latest
balance
sheet
of^
the
company,
infusion
of
capital
under
Tier
I
after
the
published
balance
sheet^
date
and
profits
accrued
during
the
year
which
are
not
in
deviation
of
more^
than
25 %
from
the
average
profit
of
four
quarters.
Applicability
The
LEF
shall
be
applicable
on
all
scheduled
commercial
banks
in
India,
with^
respect
to
their
counterparties
only.
The
LEF
has
become
applicable
with
effect
from
April
1 ,
2019.
The
revised
guidelines^
on
LEF
shall
also
become
applicable
from
the
same
date
with
ret
rospective -
effect
except
for
the
provisions
of
economic
interdependence
and
non-centrally^
cleared
derivative
exposures.What sort of borrowers are affected?
The
revised
guidelines
had
an
impact
on
the
borrowers
who
used
to
take
advantage^
of
different
entities
and
hide
behind
the
corporate
veil
to
avail
funding.^
The
introduction
of
economic
interdependence
as
a
criteria
for
de
termining -
connected
counterparties
ensures
that
no
same
persons,
whether
promoters^
or
management,
avail
facilities
through
other
entity.