Foreign banks seek leeway on LEF rules for Nostro accounts
capital flows have been firm, foreign lenders have requested the banking regulator for flexibility in compliance with the central bank's Large Exposures Framework (LEF), particularly in handling certain types of accounts that facilitate global transactions.
Banks have requested the Reserve Bank of India (RBI) to consider excluding Nostro accounts from the exposures that are permitted under the LEF as sporadic instances of foreign flows that are meant for payouts over the next couple of days have resulted in breaches of the central bank's exposure norms, sources aware of the developments told ET.
A Nostro account is one that a bank holds with an overseas lender which is denominated in the currency of that country. Such accounts help banks in enabling fund flows for international trade.
«Flows into Nostro accounts are considered as deposits for the purposes of LEF calculations and this has led to instances where the exposure limits that are permitted have been breached. Given that these inflows are typically meant for transactions that are set to occur very soon, banks have requested the RBI that this should not be counted under the LEF,» a source said.
An email sent to the RBI seeking comment on the matter did not receive a response by the time of publication.
According to a June 2019 RBI notification on the LEF, the sum of all exposure values of a bank to a single counterparty must not exceed 20% of the lender's available eligible capital base at all times. However, in exceptional cases, banks' boards can permit
