1.1 Diversification of risk is a key precept in banking. Experiences indicate that substantial loan losses, sometimes leading to bank failures, in the past, in many jurisdictions, were triggered by credit concentrations to connected counterparties or related parties. Besides individual exposures, credit concentrations also involve over-exposure to sectors, industries, regions, countries, etc., which too have implications for the risk profile of banks’ loan books. In this context, supervisors across various jurisdictions, in the interest of maintaining financial stability, set prudential limits and rules aimed at limiting the potential losses arising out of excessive concentration of credit risk on a stand alone basis and also including the connected parties.