Reserve Bank expands exemptions under Large Exposures Framework for Priority Sector Lending Shortfalls

The Reserve Bank of India (RBI) has issued notification yesterday, 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, 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: 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.

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