RBI Expands Exemptions Under Large Exposures Framework for Priority Sector Lending Shortfalls
RBI expands Large Exposures Framework exemptions to boost priority sector lending through contributions to NHB, SIDBI, MUDRA, and others.
The Reserve Bank of India (RBI) issued notification dated June 9, 2025, expanding the scope of exemptions under its Large Exposures Framework (LEF). According to the notification, RBI modifies paragraph 3.1 of the LEF to broaden the scope of entities for which exposures can be excluded from the LEF limits. Under the earlier provisions of paragraph 3.1, banks were allowed to exclude...
The Reserve Bank of India (RBI) issued notification dated June 9, 2025, expanding the scope of exemptions under its Large Exposures Framework (LEF). According to the notification, RBI modifies paragraph 3.1 of the LEF to broaden the scope of entities for which exposures can be excluded from the LEF limits.
Under the earlier provisions of paragraph 3.1, banks were allowed to exclude from LEF calculations only those deposits maintained with the National Bank for Agriculture and Rural Development (NABARD) made on account of shortfalls in meeting Priority Sector Lending (PSL) targets. The RBI has now extended this exemption to include similar contributions made to:
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- National Housing Bank (NHB)
- Small Industries Development Bank of India (SIDBI)
- Micro Units Development and Refinance Agency Ltd. (MUDRA Ltd.)
- Any other entity specified by the RBI
The updated rule clarifies that these exclusions apply only when the contributions are made to offset PSL shortfalls.
By revising paragraph 3.1 of the LEF, the RBI has effectively increased the range of permissible exemptions under the exposure norms, granting banks greater flexibility in managing their credit exposure portfolios. This change is particularly significant in a regulatory context where large exposures are tightly controlled to mitigate concentration risk.
Amended para 3.1
3. Scope of counterparties and exemptions
3.1 Under the LEF, a bank’s exposure to all its counterparties and groups of connected counterparties, excluding the exposures listed below, will be considered for exposure limits. The exposures that are exempted from the LEF are listed below:
a. Exposures to the Government of India and State Governments which are eligible for zero percent Risk Weight under the Basel III – Capital Regulation framework of the Reserve Bank of India;
b. Exposures to Reserve Bank of India;
c. Exposures where the principal and interest are fully guaranteed by the Government of India;
d. Exposures secured by financial instruments issued by the Government of India, to the extent that the eligibility criteria for recognition of the credit risk mitigation (CRM) are met in terms of paragraph 7.III of this circular;
e. Intra-day interbank exposures;
f. Intra-group exposures;
g. Borrowers, to whom limits are authorised for food credit;
h. Banks’ clearing activities related exposures to Qualifying Central Counterparties (QCCPs), as detailed in paragraph 10.I of this circular;
i. Deposits maintained with NABARD on account of shortfall in achievement of targets for priority sector lending.
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j. Contributions made by banks to funds with NHB, SIDBI, MUDRA Ltd., or any other entity as may be specified by the Reserve Bank of India, on account of shortfall in achievement of targets for priority sector lending.
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