(a) A Bank's exposures to its counterparties may result in concentration of its assets to a Single Counterparty or a Group of connected Counterparties. As a first step to address the Concentration Risk, Reserve Bank, in

According to the Basel Committee on Banking Supervision (BCBS) and adopted by various regulators including the Reserve Bank of India (RBI). A large exposure is defined as the sum of all exposures of a bank to a single counterparty or a group of connected counterparties that is equal to or exceeds 10% of the bank's eligible capital base (Tier 1 capital). The Reserve Bank of India (RBI) has adopted the Basel guidelines and issued detailed directives for Indian banks regarding large exposures, including definitions, limits, and reporting requirements. Basel III Large Exposures Framework: Provides international guidelines for large exposures, focusing on measuring, controlling, and reporting large exposures to ensure banks maintain adequate diversification in their portfolios. Single Counterparty Exposure: It refers to the total exposure a bank has to a single entity or individual. This includes all forms of on-balance sheet and off-balance sheet exposures, such as loans, advances, credit equivalents of derivatives, and investments. Banks must identify exposures that qualify as large exposures (≥10% of Tier 1 capital) and quantify these exposures accurately. The report should include detailed information on the counterparty, the nature and amount of the exposure, any collateral or guarantees, and the risk mitigation measures in place. Reporting is generally required on a quarterly basis, though it might be more frequent depending on specific regulatory requirements or the bank's internal policies. Groups of Connected Counterparties: Entities that are economically linked or have relationships that could pose a higher risk of default due to their interconnectedness. The exposure to a group of connected counterparties is capped at 25% of the bank's eligible capital base (Tier 1 capital). For exposures to groups of connected counterparties engaged in infrastructure or core industries, the limit may be extended to 30% of the bank's eligible capital base. This extension acknowledges the strategic importance of these sectors. By setting limits on exposures to these groups, the RBI aims to reduce the risk of significant losses arising from interconnected entities. Banks are required to identify, monitor, and report their exposures to connected counterparties, implementing robust risk management practices to ensure financial stability and compliance with regulatory standards. The Large Exposure limits: Single Counterparty: The sum of all the exposure values of a bank to a single counterparty must not be higher than 20 percent of the Bank's available eligible Capital Base at all times. In exceptional cases, Board of Banks may allow an Additional 5 percent exposure of the Banks available Eligible Capital Base. Banks shall lay down a Board Approved Policy in this regard. Groups of Connected Counterparties: The Sum of all the Exposure Values of a Bank to a Group of connected Counterparties must not be higher than 25 percent of the Bank's available eligible Capital Base at all times. Eligible Capital Base: Typically refers to the bank's Tier 1 capital, which consists of the core capital including equity capital and disclosed reserves. The Exposures must be measured as specified. It may be noted that the LE Limits will be modulated in case of certain counterparties. Any breach of the above Large Exposure (LE) limits shall be under exceptional conditions beyond the control of the Bank, shall be reported to RBI (DBS, CO) immediately and rapidly rectified. Under the Large Exposures Framework (LEF), the sum of all Exposure values of a Bank to a Counterparty or a Group of connected Counterparties is defined as a Large Exposure (LE), if it is equal to or above 10 percent of the Bank's eligible Capital Base (i.e., Tier 1 Capital). Banks shall report their Large Exposures to the Reserve Bank of India (RBI), Department of Banking Supervision, Central Office, (DBS, CO), as per the reporting template. The reporting, inter-alia, will include the following: All Exposures, measured as specified of this framework, with values equal to or above 10 percent of the Bank's eligible Capital (i.e., meeting the definition of a Large Exposure); All other Exposures, measured as specified of this framework without the effect of Credit Risk Mitigation (CRM), with values equal to or above 10 percent of the Bank's Eligible Capital Base; All the Exempted Exposures (Except Intraday Inter-Bank Exposures) with values Equal to or above 10 percent of the Bank's eligible Capital Base; 20 Largest Exposures included in the scope of application, irrespective of the values of these exposures relative to the Bank's eligible Capital Base.