Executive Summary:
This Reserve Bank of India circular revises the limit for regulatory retail portfolios to reduce credit costs for individuals and small businesses (with turnover up to ₹50 crore) and to harmonize with Basel guidelines. Effective October 12, 2020, the aggregated retail exposure limit to a single counterparty is increased from ₹5 crore to ₹7.5 crore. The circular clarifies the risk weight applicability to fresh and existing exposures.
Key Points / Main Content:
Revised Regulatory Retail Portfolio Limit:
* The maximum aggregated retail exposure to one counterparty is increased to ₹7.5 crore.
* This applies to claims meeting the criteria in Master Circular DBR.No.BP.BC.121.06.201201516 dated July 1, 2015, paragraph 5.9.3.
Risk Weight Application:
* A risk weight of 75% applies to all fresh exposures up to ₹7.5 crore.
* A risk weight of 75% applies to existing exposures where incremental exposure is taken up to ₹7.5 crore.
* Exposures beyond ₹7.5 crore continue to attract normal risk weights.
Other Instructions:
* All other instructions from Master Circular DBR.No.BP.BC.121.06.201201516 dated July 1, 2015, remain unchanged.
Impact Analysis:
Scheduled Commercial Banks (Including Small Finance Banks, Excluding Local Area Banks and Regional Rural Banks):
Impact: Banks can extend additional credit to existing borrowers classified as regulatory retail, and classify new borrowers as regulatory retail, up to the revised limit of ₹7.5 crore, subject to the conditions stipulated in the circular, and avail the 75% risk weight.
Action Required: Banks should implement the revised limit and risk weight for regulatory retail portfolios, and ensure compliance with the existing guidelines in the Master Circular dated July 1, 2015.
Key Entities Referenced
Reserve Bank of India: The central bank of India, which issued the circular.
Scheduled Commercial Banks: Banks regulated by the Reserve Bank of India to whom the circular is addressed, excluding Local Area Banks and Regional Rural Banks.
Small Finance Banks: A type of bank included in the Scheduled Commercial Banks that are addressed in this circular
Basel III Capital Regulations: International regulatory framework for banks referred to in the master circular DBR.No.BP.BC.121.06.201201516.
Master Circular DBR.No.BP.BC.121.06.201201516: A circular dated July 1, 2015, pertaining to Basel III Capital Regulations, which is referenced in the current circular.
Regulatory Retail Portfolio: A portfolio of retail claims defined by specific criteria for regulatory capital purposes.
Mumbai, Maharashtra: City in India, where the central office of the Reserve Bank of India is located.
Prakash Baliarsingh: Chief General Manager at Reserve Bank of India, who signed the circular.
भारतीय �रजवर् ब�क
__________________RESERVE BANK OF INDIA _________________
www.rbi.org.in
RBI/2020-21/53
DOR.No.BP.BC.23/21.06.201/2020-21 October 12, 2020
All Scheduled Commercial Banks
(Including Small Finance Banks,
Excluding Local Area Banks and Regional Rural Banks)
Dear Sir/Madam,
Regulatory Retail Portfolio – Revised Limit for Risk Weight
Please refer to paragraph 5 of the Statement on Developmental and Regulatory
Policies dated October 9, 2020 on the limit for regulatory retail portfolio.
2. In terms of para 5.9 on “Claims included in the Regulatory Retail Portfolios” of the
Master circular No.DBR.No.BP.BC.1/21.06.201/2015-16 dated July 1, 2015 on Basel
III Capital Regulations, claims (including both fund-based and non-fund based) that
meet all the four criteria listed in paragraph 5.9.3 of the above Master Circular may be
considered as retail claims for regulatory capital purposes and included in a regulatory
retail portfolio. Claims included in this portfolio shall be assigned a risk-weight of 75
per cent, except as provided in paragraph 5.12 of above Master Circular for non-
performing assets. ‘Low value of individual exposures’ is one of the four qualifying
criteria which prescribed that the maximum aggregated retail exposure to one
counterparty shall not exceed the absolute threshold limit of ` 5 crore.
___________________________________________________________________
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�हदं ी आसान ह,ै इसका �योग बढ़ाइए3. In order to reduce the cost of credit for this segment consisting of individuals and
small businesses (i.e. with turnover of upto ` 50 crore), and also to harmonise with the
Basel guidelines, it has been decided that the above threshold limit of ` 5 crore for
aggregated retail exposure to a counterparty shall stand increased to ` 7.5 crore from
the date of this circular. The risk weight of 75 per cent will apply to all fresh exposures
and also to existing exposures where incremental exposure may be taken by the
banks upto the revised limit of ` 7.5 crore. The other exposures shall continue to
attract the normal risk weights as per the extant guidelines. Illustrations are given in
the Annex.
4. All other instructions applicable in terms of the Master Circular dated July 1, 2015
remain unchanged
Yours faithfully,
(Prakash Baliarsingh)
Chief General Manager
2Annex
Illustrations of revised instructions on Regulatory Retail
Scenario 1 : As on October 12, 2020, a bank has an exposure of ` 4 crore to borrower
A which qualifies for classification as ‘regulatory retail’ in terms of Paragraph 5.9 of the
Master Circular – Basel III Capital Regulations – DBR.No.BP.BC.1/21.06.201/2015-16
dated July 1, 2015. Accordingly, it attracts 75% risk weight.
If the bank takes an additional exposure to borrower A upto ` 7.5 crore and which
continues to satisfy all other eligibility criteria of para 5.9 of the above-mentioned
circular, the entire revised exposure shall qualify for classification as ‘regulatory retail’
and attract 75% risk weight.
Scenario 2 : As on October 12, 2020, a bank has an exposure of ` 6 crore to borrower
B. After October 12, 2020, if the bank takes an additional exposure to borrower B, upto
` 7.5 crore and which otherwise satisfies all other eligibility criteria of para 5.9 of the
above-mentioned circular, the entire revised exposure shall qualify for classification as
‘regulatory retail’ and attract 75% risk weight. However, if no additional exposure is
taken after October 12, 2020, then the existing exposure shall continue to attract risk
weight as applicable earlier. The illustrations are tabulated below.
Borrower A B
Scenarios 1 2 3 4
Existing Exposure (in ` crore)
A 4.0 4.0 6.0 6.0
as on October 12, 2020
B Existing risk weight 75% 75% 100% 100%
Additional exposure taken on
C or after October 12, 2020 (in 0 1.5 0 1.5
` crore)
Total exposure on or after
D 4.0 5.5 6 7.5
October 12, 2020 (in ` crore)
E Applicable risk weight on D 75% 75% 100% 75%
3