RBI to make LEI must for companies having exposure of over Rs 5 Crore

The Reserve Bank of India (RBI) is set to make Legal Entity identifier (LEI) compulsory for the companies in preventing multiple loans to firms against the same collateral.

Earlier, In June 2017, the Central Bank has made Legal Entity identifier (LEI) mandatory for all participants in interest rate transaction, forex and credit derivative markets.

LEI is a unique 20 digit alphanumeric code that is assigned to the corporate borrowers. This number will help the bank to capture the details in the Central Repository of Information on Large Credits (CRILC) database of the firms having exposure of over Rs 5 Crore.

This initiative came in the background of RBI planning to set up a Public Credit Registry which will capture the entire database of credit information that is accessible to all stakeholders.

Firms can get their LEI code from Legal Entity Identifier India Ltd. (LEIL). LEIL is certified by the Global Legal Entity Identifier Foundation (GLEIF) and recognised by RBI as issuer of LEI under the Payment and Settlement Systems Act, 2007.

Purpose of LEI:

It will aid banks to monitor debt exposure of companies having businesses in multiple sectors.

It will enable banks to prevent money laundering and ever-greening of Loans.

LEI mechanism will allow banks to monitor companies’ debt exposure of having multiple business sectors and dealing with large number of banks and non-banking finance companies (NBFCs).

The need for such a system was felt after Global financial crisis in 2008, and then the financial stability board worked on the global structure of the LEI system.