Reserve Bank of India (All India Financial Institutions – Concentration Risk Management) Directions, 2025

1. Starts at once

The rules start the moment RBI issues them.

2. Who must follow this

These rules apply to the All India Financial Institutions.

3. Only Tier 1 counts

The capital base for these limits is Tier 1 capital alone.

4. Capital from audited accounts

The capital base comes from the last audited balance sheet.

5. New capital counts at once

Fresh capital raised after the balance sheet date may be counted.

6. Year profits do count

Profit earned during the year is added to Tier I capital here.

7. What a large exposure is

An exposure of 10 per cent or more of the capital base is a large one.

8. An auditor must certify

An outside auditor must certify the fresh capital before it is counted.

9. The five bodies covered

They are EXIM Bank, NABARD, SIDBI, National Housing Bank and NaBFID.

1. Counterparties, not sectors

These limits are about who you lend to, not which industry.

2. Refinance is left out

The refinance book is outside these limits.

3. RBI exposure is exempt

Money placed with RBI is outside these limits.

4. Government guarantee is exempt

A loan fully guaranteed by the Government of India is outside these limits.

5. Intra day bank deals exempt

The institution leaves out bank deals that settle the same day.

6. Twenty per cent one name

Lending to one borrower may not pass 20 per cent of the capital base.

7. Board can add five more

The board may allow five per cent above 20 per cent, never past 25 per cent.

BankPulse example. A financial institution lends to one company. The normal ceiling is 20 per cent of its capital base. The board may allow five per cent more for a special case, with the reason written down. Even then the total can never pass 25 per cent.

8. Twenty five for a group

A group of linked borrowers may not pass 25 per cent of the capital base.

9. Ten more for infrastructure

For infrastructure, a linked group may take 10 per cent of Tier I capital more.

10. Linked firms count as one

Firms that would fail together are treated as one borrower.

11. Five per cent starts checking

The hunt for linked firms starts only above five per cent of the capital base.

12. Half the income from one

Two firms are linked if half of one firm's income comes from the other.

13. A floor of ten

Off balance sheet items are converted with a floor of 10 per cent.

14. Banks capped at twenty five

The institution may place up to 25 per cent of Tier 1 capital with banks.

15. Unknown borrowers grouped together

Where the real borrowers cannot be found, all of them count as one name.

16. Small holdings stay together

A small holding in a fund may be counted against the fund itself.

17. A breach must be fixed

A breach may only happen in rare cases outside control, and must be fixed at once.

18. No new deals until cured

While a limit is crossed, no fresh exposure may be taken at all.

19. Penalty can follow

Not meeting the limit can bring a penalty from the supervisor.

20. One board policy needed

The board must approve one full policy on large exposures.

21. A policy for refinance

That policy must set the lending limits for the refinance book.

22. Reasons must be written down

The special reason for going beyond 20 per cent must be written for each case.

23. A policy for linked firms

The board must also approve how linked borrowers are found.

24. Look through the fund

Where a fund is used, the institution must find the real borrowers behind it.

25. Board review before June

The board must see a yearly review by end June. For National Housing Bank it is September.

26. Tell RBI at once

Every breach must be reported to RBI straight away.

27. Report every month

Large exposures must be reported to RBI every month.

28. The twenty biggest always

The 20 biggest exposures are reported whatever their size.

1. Capital market forty per cent

All capital market exposure may not pass 40 per cent of net worth.

2. Direct part twenty per cent

Inside that, direct exposure may not pass 20 per cent of net worth.

3. Forty nine under mandate

Where the law it was set up under allows it, the institution may hold 49 per cent.

4. Ten per cent otherwise

In every other case it may hold only 10 per cent of a company.

5. Pledge may reach forty nine

Shares taken as a pledge may go up to 49 per cent.

6. All such equity together

All shares held in trading and making firms together may not pass 10 per cent of net worth.

7. Board sets sector limits

The board should set its own limits for each industry it lends to.

8. Three years to come down

If those pledged shares are taken over, the holding must fall below 10 per cent in 3 years.

9. Board may go lower

The board is free to set a tighter limit than RBI's.

1. The old rules are gone

All earlier concentration risk instructions for these institutions stand repealed.

2. Old actions still stand

Anything already done under the old rules is still judged by them.

3. Other laws still apply

These rules sit on top of other laws. They do not take the place of them.

4. RBI's reading is final

Where the wording is unclear, RBI's own reading of it is final.