Press Release: 2025-2026/1630 Dated 04.12.2025
1. Introduction
The Reserve Bank of India (RBI) has issued important revisions to the Large Exposure Framework (LEF) and the Interbank Exposure Framework (ITE) to bring enhanced clarity on the prudential treatment applicable to foreign bank branches operating in India. These changes aim to ensure consistency, strengthen risk oversight, and align domestic regulatory requirements with international best practices.
2. Background of LEF and ITE Frameworks
The LEF governs the maximum credit exposure a bank can have to a single counterparty or group, thereby mitigating concentration risk. The ITE framework, on the other hand, regulates interbank exposure to maintain systemic stability. For foreign bank branches, the interpretation and application of these norms occasionally involved ambiguities due to their unique operational structure. The RBI’s revised guidance seeks to eliminate these gaps.
3. Key Clarifications Introduced by RBI
The updated Directions clarify how exposure of foreign bank branches should be measured, aggregated, and reported under both LEF and ITE. RBI has refined rules for identifying counterparties, determining eligible capital for exposure calculation, and applying limits to branch-based operations. The revisions also ensure uniformity in how foreign branches compute exposure ceilings vis-à-vis their global and domestic entities, reducing inconsistencies in risk reporting.
4. Implications for Foreign Banks and the Indian Banking System
Foreign bank branches will now have a clearer compliance roadmap, reducing interpretational challenges and improving accuracy in exposure measurement. The strengthened framework will enhance risk management discipline, prevent excessive counterparty concentration, and ensure that foreign branches operate under the same prudential guardrails as Indian banks. Moreover, the clarity is expected to support smooth supervisory reviews and promote financial system stability.
5. Conclusion
RBI’s revisions to the LEF and ITE frameworks reflect its continued commitment to a transparent, robust, and harmonised regulatory environment. By providing clear prudential guidance for foreign bank branches, the central bank has ensured consistent application of exposure norms across the sector. These updates will not only enhance compliance efficiency but also contribute to India’s broader financial stability and regulatory coherence.
Click Here To Read The Full Press Release
The post RBI Revises LEF & ITE Norms for Foreign Bank Branches appeared first on Taxmann Blog.
