Module: | MODULE B: RISK MANAGEMENT
Q383: A commercial bank has an audited Tier 1 Capital base of ₹ 10,000 Crore. Based on the RBI Large Exposures Framework (LEF), calculate the maximum permitted Single Borrower Limit (SBL) without any special Board extension, and the maximum Group Borrower Limit (GBL) respectively.
Calculate the exact monetary limits applicable for this bank.
✅ Correct Answer: B
The correct answer is B. Under the RBI's Large Exposures Framework (LEF), exposure limits are strictly calculated as a percentage of the bank's eligible Tier 1 Capital.
Step 1: Calculate the Single Borrower Limit (SBL). The regulatory cap for a single counterparty is 20% of Tier 1 Capital (extendable to 25% only with exceptional Board approval, which is excluded in this scenario).
SBL = 20% of ₹ 10,000 Crore = ₹ 2,000 Crore.
Step 2: Calculate the Group Borrower Limit (GBL). The regulatory cap for a group of connected counterparties is 25% of Tier 1 Capital.
GBL = 25% of ₹ 10,000 Crore = ₹ 2,500 Crore.
Therefore, the bank can lend a maximum of ₹ 2,000 Crore to a single entity and ₹ 2,500 Crore to a corporate group.
Options A, C, and D apply mathematically incorrect percentages (like the obsolete 15% / 40% limits based on total capital funds).
Step 1: Calculate the Single Borrower Limit (SBL). The regulatory cap for a single counterparty is 20% of Tier 1 Capital (extendable to 25% only with exceptional Board approval, which is excluded in this scenario).
SBL = 20% of ₹ 10,000 Crore = ₹ 2,000 Crore.
Step 2: Calculate the Group Borrower Limit (GBL). The regulatory cap for a group of connected counterparties is 25% of Tier 1 Capital.
GBL = 25% of ₹ 10,000 Crore = ₹ 2,500 Crore.
Therefore, the bank can lend a maximum of ₹ 2,000 Crore to a single entity and ₹ 2,500 Crore to a corporate group.
Options A, C, and D apply mathematically incorrect percentages (like the obsolete 15% / 40% limits based on total capital funds).