Large Exposures Framework – Amendment in the list of exempted exposures

## Report on Amendment to Large Exposures Framework by RBI **1. Executive Summary:** This report analyzes an amendment issued by the Reserve Bank of India (RBI) regarding the Large Exposures Framework (LEF). The amendment, dated June 9, 2025, expands the list of exemptions under the LEF to include contributions made by Scheduled Commercial Banks (excluding Regional Rural Banks) to funds with NHB, SIDBI, MUDRA Ltd., or any other entity specified by RBI, on account of shortfall in achievement of targets for priority sector lending. The core purpose of this amendment appears to be to further incentivize priority sector lending by reducing the exposure limit burden on banks for contributions made due to shortfall. This report details the amendment's provisions, target audience, implementation aspects, and expected outcomes. **2. Introduction:** This report aims to provide a comprehensive analysis of the RBI's amendment to the Large Exposures Framework (LEF), as detailed in circular RBI20252648 DOR.CRE.REC.2721.01.003202526 dated June 9, 2025. The analysis is based solely on the information provided in the circular text. **3. Policy Overview:** * This report pertains to an **amendment** to the Large Exposures Framework (LEF). The original policy referenced is circular DBR.No.BP.BC.4321.01.003201819 dated June 03, 2019. * **Core Objective (Inferred):** The amendment’s core objective is to promote priority sector lending by incentivizing banks to meet their targets, even if it requires contributing to specific funds to cover shortfalls. **4. Background and Rationale:** The amendment addresses the issue of exposure limits for banks that fail to meet their priority sector lending targets. The original policy (LEF) likely imposed exposure limits that could have disincentivized contributions to funds like NABARD to compensate for these shortfalls. This amendment aims to alleviate this disincentive by exempting contributions to a broader range of entities (NHB, SIDBI, MUDRA Ltd., and any other entity specified by RBI) from LEF exposure limits. This encourages banks to prioritize lending to critical sectors of the economy without unduly affecting their exposure limits. **5. Key Provisions / Changes:** This amendment specifically changes paragraph 3.1 of the Annex to circular DBR.No.BP.BC.4321.01.003201819 dated June 03, 2019. * **What is being changed:** The list of exempted exposures under the LEF. Previously, only deposits maintained with NABARD on account of shortfall in achievement of targets for priority sector lending were excluded from being considered for exposure limits. * **New Rule/Provision:** The amendment adds that the exemption from exposure limits under the LEF will also apply to contributions made by Scheduled Commercial Banks to funds with NHB, SIDBI, MUDRA Ltd., or any other entity specified by RBI, on account of shortfall in achievement of targets for priority sector lending. * **Difference/Effect of the Change:** This significantly broadens the scope of the exemption. Banks can now contribute to a wider range of funds (NHB, SIDBI, MUDRA Ltd., and future entities specified by RBI) due to priority sector lending shortfalls without those contributions being considered for exposure limits under the LEF. This reduces the burden on banks and should encourage them to fulfill their priority sector lending obligations. **6. Target Audience and Stakeholders:** The direct target audience and stakeholders are: * All Scheduled Commercial Banks (excluding Regional Rural Banks). * NHB (National Housing Bank). * SIDBI (Small Industries Development Bank of India). * MUDRA Ltd. * RBI, as the regulatory body. * Potentially, other entities that RBI may specify in the future. **7. Implementation Aspects (Inferred):** * **Responsible Agency/Bodies:** The RBI (Department of Regulation) is responsible for the implementation and oversight of this amendment. The Scheduled Commercial Banks are responsible for complying with the new provisions. * **Timelines/Procedures:** The instruction is applicable with immediate effect (as of June 9, 2025). No specific procedures are outlined in the provided text, but banks are expected to incorporate this amendment into their exposure calculations immediately. * **Specific to the Changes:** Banks need to update their internal systems and processes to ensure that contributions to NHB, SIDBI, MUDRA Ltd., and other RBI-specified entities due to priority sector lending shortfalls are correctly exempted from LEF exposure calculations. **8. Expected Outcomes / Impact of Changes:** The likely intended outcome of this amendment is to encourage Scheduled Commercial Banks to actively pursue priority sector lending targets. By exempting contributions made to NHB, SIDBI, MUDRA Ltd., and other RBI-specified entities (due to shortfalls) from exposure limits, the RBI aims to alleviate the potential financial burden on banks and promote greater investment in priority sectors. This could lead to increased lending to crucial sectors of the economy, supporting growth and development. **9. Conclusion:** The RBI's amendment to the Large Exposures Framework, effective June 9, 2025, significantly expands the list of exempted exposures to include contributions made by Scheduled Commercial Banks to funds with NHB, SIDBI, MUDRA Ltd., or any other entity specified by RBI, on account of shortfall in achievement of targets for priority sector lending. This amendment is a significant step towards promoting priority sector lending by reducing the exposure limit burden on banks. This amendment underscores the RBI's commitment to supporting priority sectors and promoting inclusive economic growth.

Key Entities Referenced