What changed
The threshold for aggregated retail exposure to a single counterparty under the regulatory retail portfolio has been raised from ₹5 crore to ₹7.5 crore. This change applies to both fresh exposures and incremental exposures on existing ones, provided all other eligibility criteria from the July 2015 Master Circular on Basel III Capital Regulations are met.
What it means for you
Banks can now extend larger loans to individuals and small businesses (turnover up to ₹50 crore) while still enjoying the lower 75% risk weight, which reduces capital requirements. This should lower the cost of credit for these segments and align Indian norms more closely with Basel guidelines. Existing exposures above ₹5 crore but below ₹7.5 crore will also qualify for the lower risk weight if additional exposure is taken after the circular date.
What you must do
- Update internal credit policies to reflect the new ₹7.5 crore limit for regulatory retail portfolio classification.
- Review existing exposures to identify those between ₹5 crore and ₹7.5 crore that can now be reclassified as regulatory retail with 75% risk weight.
- Ensure all eligibility criteria from the July 2015 Master Circular (para 5.9) are still met before applying the lower risk weight.
- Train credit and risk teams on the revised limit and the illustrative scenarios provided in the annex.
Who it affects
All Scheduled Commercial Banks (including Small Finance Banks), Retail lending departments, Credit risk management teams, Small business borrowers (turnover up to ₹50 crore), Individual borrowers
Does the new limit apply to existing exposures without any additional drawdown?
No, for existing exposures above ₹5 crore but below ₹7.5 crore, the 75% risk weight applies only if the bank takes additional exposure after October 12, 2020, bringing the total to the revised limit. Otherwise, the existing risk weight continues.
What happens if a borrower's total exposure exceeds ₹7.5 crore?
Exposures above ₹7.5 crore will not qualify for the regulatory retail portfolio and will attract normal risk weights as per extant guidelines.