The Reserve Bank of India (hereinafter referred to as the ‘RBI’) introduced Legal Entity Identifier code for large corporate borrowers vide Notification no. RBI/2017-18/82 , dated November 02, 2017, wherein it stated that corporate borrowers which do not obtain a specific code called the Legal Entity Identifier (hereinafter referred to as the ‘LEI’) number from banks will not be given credit facilities.
These directions were issued under the Section 21 and Section 35 (A) of the Banking Regulation Act, 1949, which talk about RBI’s power to control advances by banking companies and RBI’s power to issue directions respectively.
LEI is a 20-digit unique code to identify parties to financial transactions worldwide. Earlier this year, RBI also implemented the LEI system for all participants in the Over-the-Counter (OTC) markets for Rupee Interest Rate derivatives, foreign currency derivatives and credit derivatives in India, in a phased manner. In line with this notification, RBI has again reiterated the LEI code as a key measure to improve the quality and accuracy of financial data systems for better risk management post the Global Financial Crisis.
Mandatory to obtain LEI code:
Last month RBI had released a Statement on Developmental and Regulatory Policies, wherein it was decided for banks to make it mandatory for corporate borrowers having aggregate fund-based and non-fund based exposure of INR 5 crore and above from any bank to obtain LEI registration and capture the same in the Central Repository of Information on Large Credits (CRILC). It was stated that this will facilitate assessment of aggregate borrowing by corporate groups, and monitoring of the financial profile of an entity/group.
In furtherance to the same, RBI has now stated that the banks shall advise their existing large corporate borrowers having total exposures of INR 50 crore and above to obtain LEI code. It was also stated that a separate roadmap would be issued in due course specifically for borrowers having exposure between INR 5 crores and up to INR 50 crores.
In order to obtain the LEI code, the authority to be contacted is Legal Entity Identifier India Ltd (LEIIL) which is a subsidiary of the Clearing Corporation of India Limited. This authority has also been recognized by the RBI as the issuer of LEI code under the Payment and Settlement Systems Act, 2007.
RBI has stated that if the large corporate borrowers fail to obtain LEI then they shall not to be granted renewal/enhancement of credit facilities. This is expected to help the banks to effectively monitor and measure the total exposure which large corporate borrowers are facing and also to prevent multiple loans to be advanced to the companies against the same collateral. This is also expected to help the business community at large as it would improve entity identification across financial markets and beyond.
 Section 21 and Section 35(A) of the Banking Regulation Act, 1949. Available at: https://rbidocs.rbi.org.in/rdocs/Publications/PDFs/BANKI15122014.pdf.
 RBI Circular no. RBI/2016-17/314, dated June 01, 2017. Available at: https://rbidocs.rbi.org.in/rdocs/notification/PDFs/NOTI3143399AEE12E684FCF9FEEA7E03E0E9064.PDF
 Press release by RBI regarding Statement on Developmental and Regulatory Policies, dated October 4, 2017. Available at: https://rbidocs.rbi.org.in/rdocs/PressRelease/PDFs/PR92499923D3773DD4C1C8B5D9ACF9B6138CE.PDF.