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What is Legal Entity Identifier (LEI)?

Quoting Legal Entity Identifier (LEI) code has become mandatory for various kinds of large value financial transactions. What is LEI?

What is Legal Entity Identifier (LEI)?

LEI is a 20-character unique identity code assigned to entities who are parties to a financial transaction.

Legal Entity Identifier (LEI) code has been conceived of as a key measure to improve the quality and accuracy of financial data systems for better risk management post the Global Financial Crisis. 

From where can LEI code be obtained?

Entities can obtain LEI from any of the Local Operating Units (LOUs) accredited by Global Legal Entity Identifier Foundation (GLEIF) – the entity tasked to support the implementation and use of LEI. 

In India, LEI code may be obtained from Legal Entity Identifier India Ltd. (LEIL), a subsidiary of Clearing Corporation of India Ltd. (CCIL), which has been recognised by Reserve Bank of India (RBI) as issuer of LEI under Payment and Settlement Systems Act, 2007 and is accredited by GLEIF as LOU in India for issuance and management of LEI.

Who shall obtain LEI code?

1. OTC derivatives markets 

All participants (other than individuals) in Over-the-Counter (OTC) markets for Rupee Interest Rate derivatives, foreign currency derivatives and credit derivatives in India need to obtain the unique LEI code. 

2. Large corporate borrowers 

Large corporate borrowers having total exposures of ₹50 crore and above need to obtain LEI code, without which they are not to be granted renewal / enhancement of credit facilities. 

3. Participation in non-derivative markets 

All participants (other than individuals) undertaking transactions in the markets regulated by RBI viz., Government securities markets, money markets and non-derivative forex markets (transactions that settle on or before the spot date) need to obtain LEI codes. Transactions undertaken on recognized stock exchanges are outside the purview of LEI requirement. In case of non-derivative forex transactions, while all inter-bank transactions are subject to LEI requirement, client transactions require LEI code for transactions involving an amount equivalent to or exceeding USD 1 million or equivalent thereof in other currencies.

4. Large Value Transactions in Centralised Payment Systems 

With effect from April 01, 2021, all payment transactions of value ₹50 crore and above undertaken by entities (non-individuals) using RBI-run Centralised Payment Systems viz. RTGS and NEFT need to mention LEI code.

5. Cross-border Transactions 

AD Category-I banks, with effect from October 1, 2022, shall obtain LEI number from resident entities (non-individuals) undertaking capital or current account transactions of ₹50 crore and above (per transaction) under FEMA, 1999. Once an entity has obtained LEI number, it must be reported in all transactions of that entity, irrespective of transaction size.

6. Borrowers 

Non-individual borrowers enjoying aggregate exposure of ₹5 crore and above from banks and financial institutions shall obtain LEI codes as per the timeline given below –

Total ExposureLEI to be obtained on or before
Above ₹25 croreApril 30, 2023
Above ₹10 crore, up to ₹25 croreApril 30, 2024
₹5 crore and above, up to ₹10 croreApril 30, 2025

Banks – Scheduled Commercial Banks (excluding RRBs), Local Area Banks, Small Finance Banks and UCBs.

Financial Institutions (FIs) – All India Financial Institutions (Exim Bank, SIDBI, NHB, NABARD and NaBFID) and NBFCs (including HFCs).

Exposure – all fund based and non-fund based (credit as well as investment) exposure of banks / FIs to the borrower. Aggregate sanctioned limit or outstanding balance, whichever is higher, shall be reckoned for the purpose.

Borrowers who fail to obtain LEI codes from an authorized Local Operating Unit (LOU) shall not be sanctioned any new exposure nor shall they be granted renewal / enhancement of any existing exposure. However, Departments / Agencies of Central and State Governments (not Public Sector Undertakings registered under Companies Act or established as Corporation under the relevant statute) are exempted from this provision.


References

Reserve Bank of India. (2017, November 02). 'Introduction of Legal Entity Identifier for large corporate borrowers'. Retrieved from https://rbi.org.in/Scripts/NotificationUser.aspx?Id=11154&Mode=0

Reserve Bank of India. (2017, June 01). 'Introduction of Legal Entity Identifier for OTC derivatives markets'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=10988&Mode=0

Reserve Bank of India. (2018, November 29). 'Legal Entity Identifier Code for participation in non-derivative markets'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=11424&Mode=0

Reserve Bank of India. (2021, August 12). 'FAQ-Legal Entity Identifier (LEI) for Large Value Transactions in Centralised Payment Systems'. Retrieved from https://www.rbi.org.in/Scripts/FAQView.aspx?Id=140

Reserve Bank of India. (2021, December 10). 'Introduction of Legal Entity Identifier for Cross-border Transactions'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12206&Mode=0

Reserve Bank of India. (2021, January 05). 'Introduction of Legal Entity Identifier for Large Value Transactions in Centralised Payment Systems'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12010&Mode=0

Reserve Bank of India. (2022, April 21). 'Legal Entity Identifier (LEI) for Borrowers'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12301&Mode=0


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