Mandatory Requirement to obtain LEI for Non-individual Borrowers

No Comments

LEI for Non-individual Borrowers

The launch of the Legal Entity Identifier (LEI) was intended to improve the quality and accuracy of financial data systems to better manage risk following the evolution of the Global Financial Crisis. This allows the party’s financial transactions throughout the world to be tracked. The Reserve Bank of India ordered the acquisition of LEI certificates for non-individual borrowers in its notifications carrying reference numbers RBI/2017-18/82 DBR.No.BP.BC.92/21.04.048/2017-18 and RBI/2022-23/34 DOR.CRE.REC.28/21.04.048/2022-23. This article discusses the Legal Entity Identifier (LEI) for borrowers.

Table of Contents

Key Abstract

To better manage risk following the evolution of the Global Financial Crisis by controlling big value transactions in Centralized Payments systems and improving the quality and accuracy of financial data systems.

The Reserve Bank of India implemented the LEI in stages for over-the-counter (OTC) derivatives, non-derivatives markets, major corporate borrowers, and high-value transactions in centralized payment systems.

Description of Legal Entity Identifier (LEI)

Legal Entity Identifier (LEI) is a 20-digit unique generated number used to identify parties worldwide to ignore financial activities and obtain precise financial data, hence controlling risk.
The Legal Entity Identifier (LEI) is produced independently for each non-individual party and is not relevant in customer transactions where both the remitter and the beneficiary are persons.
The goal of developing the Legal Entity Identifier (LEI) is to create a worldwide reference data system that uniquely identifies every legal entity in any country that is involved in a financial transaction.
Borrowers must renew their Legal Entity Identifier (LEI) by the guidelines of the Global Legal Entity Identifier Foundation (GLEIF), and Banks and Financial Institutions are responsible for the renewal.

Authorization to create a Legal Entity Identifier (LEI)

Legal Entity Identifier can be obtained through any of the Global Legal Entity Identifier Foundation’s approved Local Operating Units (LOUs).

The Global Legal Entity Identifier Foundation (GLEIF) was formed to aid in the implementation of the Legal Entity Identifier (LEI)

Who needs a Legal Entity Identifier (LEI)?

The legal entity identifier (LEI) is compulsory in the making of interest rates, forex, and market outflows. The Reserve Bank of India (RBI) has also made LEI mandatory for companies and organizations with full fund-based and non-funded credit exposure over Rs ​​50 crore.

Documents required for registration of LEI

To obtain an LEI number, several documents will be required.
The documents will be used to validate the official registration data for your legal entity. It should contain the name of your officially registered business, your current address, and the name of the key stakeholders (such as the CEO).

As part of your LEI application, the following documents will be required-

  • Power of Attorney or legal letter
  • Incorporation Certificate 
  • Certificate of Incumbency
  • Registry Extract or official filling
  • Article of Association
  • Any other mandatory document that verifies the required LEI data, such as an annual report, Directors’ register, your audited accounts, etc.

RBI guidelines for Legal Entity Identifier (LEI) for Borrowers

The central bank stated in a notification Circular no. RBI/2022-23/34 DOR.CRE.REC.28/21.04.048/2022-23, Dated: 21.04.2022 that following a review, it has been determined that the rules on LEI would be extended to Primary (Urban) Co-operative Banks (UCBs) and Non-Banking Financial Companies (NBFCs).

Previously, the RBI decided in Circular no. RBI/2017-18/82 DBR No.BP.BC.92/21.04.048/2017-18, Dated: 02.11.2017, that banks should advise their existing large corporate borrowers with total exposures of Rs. 50 crore and above to obtain LEI codes within the timeframes specified in the schedule annexed to the Circular. Banks should also push major borrowers to get LEI for both their parent organization and their subsidiaries and affiliates.

The RBI has now decided to extend the Legal Entity Identifier (LEI) rules to Primary (Urban) Co-operative Banks (UCBs) and Non-Banking Financial Companies (NBFCs). Furthermore, the RBI has advised that non-individual borrowers with aggregate exposure of Rs. 5 crores or more from banks and financial institutions must get LEI codes within the timeframes mentioned in the Circular. All fund-based and non-fund-based (credit and investment) exposure of banks/FIs to the borrower should be included in the word “exposure.” The higher the aggregate sanctioned limit or the outstanding balance must be used for this purpose.

Furthermore, the RBI has said that borrowers who do not secure LEI codes from an approved Local Operating Unit (LOU) would not be awarded any new exposure or renewal/enhancement of any existing exposure. Departments/Agencies of the Central and State Governments, however, are excluded from the clause if they are not Public Sector Undertakings registered under the Companies Act, 2013 or constituted as Corporations under the appropriate law.

Meaning of the word “exposure” in the Guideline

The “exposure” for this purpose will include all fund exposure and non-funded (credit and investment) banking/FI to the borrower. The limit with the combined penalty or balance remaining, whichever is higher, will be calculated for the purpose. Lenders may receive a full disclosure based on the information available to them, on the CRILC website, or a declaration received from the borrower.

Borrowers who fail to obtain LEI codes from an accredited Local Operations Unit (LOU) will not be authorized for any new exposure and will not be offered an update/upgrade of any existing exposure. 

Timeline to obtain LEI by Borrowers

Exposure  Timeline 
Over Rs. 25 crore 30 April, 2023
Above Rs. 10 crores and up to 25 crore 30 April, 2024
Rs. 5 crore- Rs 10 crore 30 April, 2025

The following are some examples of why a Legal Entity Identifier (LEI) will be required:

  • Transactions initiated by banks for internal payments, loan distribution to corporates, term deposits, maturity procedures, and account closure procedures, among other things.
  • Day-to-day operating transactions of 50 crores or more conducted by financial institutions such as sub-member banks/banks/BCs/WLAs, etc.

Note: Departments/Agencies of the Central and State Governments are exempt from the aforesaid requirements (but not Public Sector Undertakings registered under the Companies Act, 2013 or incorporated as Corporations under the appropriate law).

RBI Compliances for Foreign investments, NBFC & Banks.

Final words

The Global LEI Index’s benefits to the broader business community grow in direct proportion to the pace of LEI adoption. Firms are encouraged to join in the process and establish their LEI to gain the benefits of entity identification in financial markets and elsewhere. LEI is easy to get. Registrants just contact their preferred business partner from the list of LEI issuing companies on the GLEIF website.

Connect to Legal Window for more updates on Legal Entity Identifier (LEI) For Borrowers.

Neelansh Gupta is a dedicated Lawyer and professional having flair for reading & writing to keep himself updated with the latest economical developments. In a short span of 2 years as a professional he has worked on projects related to Drafting, IPR & Corporate laws which have given him diversity in work and a chance to blend his subject knowledge with its real time implementation, thus enhancing his skills.

About us is a professional technology driven platform of multidisciplined experts like CA/CS/Lawyers spanning with an aim to provide concrete solution to individuals, start-ups and other business organisation by maximising their growth at an affordable cost.

Ask an Expert

More from our blog