The Legal Entity Identifier, or LEI, is much more than a simple formality to satisfy regulatory needs; it represents the foundation of financial transparency and risk management around the world. Following the 2008 financial crisis, the G20 and FSB identified a pressing need for having one uniform identity system for participants in the global financial markets. Thus, came the idea of the 20-character, alpha-numeric code known as the LEI.
For any non-individual entity in India, the road map for its phased implementation, the clear-cut RBI requirements, and the practical need to obtain an LEI have become very important for smooth and efficient financial functioning.
The Core Purpose of the LEI: Practical Risk Mitigation
The LEI's work has the ultimate objective of establishing a well-defined, globally accessible data system answering a very basic question: "Who is who in any financial transaction?"
1. Systemic Risk Measurement: By tagging every transaction counterparty with a unique globally verifiable ID, the LEI enables regulators like the RBI to correctly aggregate exposure across institutions, markets, and jurisdictions. This is essential for micro and macroprudential surveillance and offers early intervention during financial distress.
2. Due Diligence and Compliance: The openly available Global LEI Index simplifies Know Your Customer (KYC) and Know Your Business (KYB) processes. A valid LEI delivers instant, validated legal entity data, easing the compliance burden and minimizing much of the manual effort and expense related to counterparty verification.
3. Increased Transparency: The LEI not only identifies the transacting entity, but also gives Level 2 data, representing the 'Who Owns Whom' structure. This links the parent and subsidiary entities together, providing a clear view of corporate relationships, which is key to preventing financial crime and tracking ownership.
Practical LEI Applicability and RBI Thresholds
The RBI has systematically expanded the applicability of LEI across four critical pillars of the Indian financial system: corporate credit, money and forex markets, cross-border transactions, and large-value payment systems.
1. Corporate Borrowers: ₹5 Crore Threshold
This scope of LEI applicability is arguably the most widespread, which has been mandated by RBI. It directly addresses credit risk management for banks and FIs.
- The Mandate: This LEI requirement is applicable to all non-individual borrowers-e.g., companies, LLPs, etc.-whose aggregate fund and non-fund-based credit exposure from banks, NBFCs, and Primary Urban Co-operative Banks is ₹5 crore and above.
- Limit: The total exposure would be inclusive of loans, cash credit, bank guarantees, and Letters of Credit. As the threshold is calculated based on either a sanctioned limit or outstanding balance, whichever is higher.
- The Consequence: Failure to comply with this LEI requirement means the borrower shall not be sanctioned any new exposure, nor granted renewal or enhancement of any existing exposure. The staggered deadline for entities with exposure between ₹5 crore and ₹10 crore expired on April 30, 2025.
2. Large Value Payments: The ₹50 Crore Limit
LEI applicability was extended to the central payment infrastructure of India, ensuring traceability and security for massive fund movements.
- Mandate: All single payment transactions of ₹50 crore and above (initiating and receiving) carried out by entities (non-individuals) through RTGS and NEFT systems shall henceforth carry the LEI information of both the remitter as well as the beneficiary.
- Practicality: The measure ensures that large-scale inter-corporate transfers, including vendor payments and forex payments, and inter-company funding have a clear, globally verifiable audit trail.
3. Cross-Border Transactions: The ₹50 Crore / USD 1 Million Limit
The LEI is being mandated to align with global financial messaging in the case of cross-border financial activities.
- FEMA Mandate: AD Category I banks are required to obtain the LEI number from resident entities who are non-individuals undertaking capital or current account transactions of ₹50 crore and above per transaction under the FEMA, 1999.
- Forex Market Mandate: The LEI is required in non-derivative forex transactions, other than with individuals, where the amount of the transaction reaches or exceeds USD one million.
4. Participants in Financial Markets
The LEI applicability was first implemented for participants other than individuals in all the markets regulated by the RBI, including:
- Over-the-Counter (OTC) Derivative Markets (Rupee Interest Rate, Foreign Currency, and Credit Derivatives).
- Government Securities-G-Sec Market.
- Money Market instruments.
Who needs an LEI number in India?
The question of who needs an LEI number in India is no longer confined to large banks or multinational corporations but also extends to any legal entity that undertakes financial activities above the regulatory thresholds specified.
Practically, who needs an LEI number in India would include:
- All companies (Private/Public Ltd., LLPs, Trusts, Societies, etc.) with aggregate bank exposure of ₹5 crore and above.
- Any entity making or receiving a single payment via NEFT/RTGS of ₹50 crore and above.
- Any entity undertaking a cross-border transaction of ₹50 crore and above, under FEMA.
- All entities trading in regulated markets such as G-Secs or derivatives.
Conclusion
The entities will, therefore, have to acquire the LEI code from the only LOU in the country, LEIL, and its annual renewal for retaining 'Active' status on the LEI register India. This publicly verifiable database will ensure that the identity information on it is constantly up to date. Non-renewal of the code and failure to maintain its active status on the LEI register India could act as a trigger by which any denial of basic banking service and restriction in market participation may come into effect, thereby making the requirement of LEI so crucial.
In other words, the pervasive applicability of LEI driven by the RBI in India helps position the country as a compliant and risk-aware global financial market.