RBI Expands Exemptions Under Large Exposures Framework for Priority Sector Lending Shortfalls

The Reserve Bank of India (RBI) has expanded the list of exemptions under its Large Exposures Framework. The new exemptions relate to the funds that banks place with institutions like NABARD as part of their contributions towards Priority Sector Lending (PSL) shortfalls. Under the Large Exposures Framework, there are limits on how much a bank can lend to a single counterparty. The RBI has now clarified that these specific deposits, made to meet regulatory PSL requirements, will be exempt from these exposure limits. This move is intended to provide banks, particularly Urban Co-operative Banks, with greater flexibility and to remove any disincentive they might have in placing these funds. It ensures that the prudential norms on large exposures do not inadvertently hinder the mechanism designed to channel credit to priority sectors, thereby aligning different regulatory objectives.