The Reserve Bank of India issued amendments to its commercial banks concentration risk management framework, updating how capital market exposures (CME) are defined, measured and capped, following the issuance of the Reserve Bank of India (Commercial Banks – Credit Facilities) Amendment Directions, 2026. The changes restructure the CME framework around an expanded scope of direct and indirect exposures, refreshed prudential ceilings, revised exclusions, and new calculation rules. CME is redefined to include both direct and indirect fund-based and non-fund-based exposures, covering specified investment exposures such as equity and preference shares, convertible instruments, units of non-debt mutual funds, REITs, InvITs and Alternative Investment Funds, as well as credit exposures including lending linked to equity and similar collateral, credit facilities to capital market intermediaries, acquisition finance and bridge finance, underwriting commitments linked to acquisition finance or non-debt mutual funds, irrevocable payment commitments issued by custodian banks, and certain clearing member client trade exposures including funded initial margins. New ongoing prudential ceilings apply on both solo and consolidated bases: aggregate CME must not exceed 40% of eligible capital base, direct capital market exposure from investment exposures must not exceed 20%, and aggregate exposure to acquisition finance must not exceed 20% within the overall 40% limit, alongside required separate intra-day sub-limits for a single counterparty and for all intra-day exposures. The amendments also specify valuation and recognition rules, including cost-based measurement for direct investments, higher-of-sanctioned-limit-or-outstanding for credit exposures with limited exceptions, partial recognition for certain intraday exposures to a Qualified Central Counterparty, and differentiated treatment for irrevocable payment commitments under T+1 and T+2 settlement cycles subject to netting conditions, with limited offsetting by cash and Government securities permitted subject to prescribed haircuts. A revised list of “critical financial infrastructure” exposures is substituted in Annex II for CME exemptions, and additional exclusions are set out, while equity acquired via conversion during restructuring or insolvency resolution remains exempt from CME ceilings subject to Banking Regulation Act constraints. The amendments take effect from the date a bank decides to implement the Reserve Bank of India (Commercial Banks – Credit Facilities) Amendment Directions, 2026 or from April 1, 2026, whichever is earlier.
Reserve Bank of India 2026-02-13
Reserve Bank of India amends commercial banks’ concentration risk rules by redefining capital market exposures and setting a 40% eligible capital ceiling
The Reserve Bank of India has amended its commercial banks' concentration risk management framework, redefining capital market exposures (CME) to include both direct and indirect exposures with updated prudential ceilings and calculation rules. Effective from a bank's decision date or April 1, 2026, whichever is earlier, the amendments set CME limits at 40% of eligible capital base, with specific sub-limits for investment and acquisition finance exposures.