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Off-Balance Sheet Exposure

Exposure means ‘your assets which you've lent to others’.

Off-Balance sheet exposure refers to activities that are assets or liabilities of an entity which doesn't appear on the balance sheet. Example: Letter of the undertaking, Letter of credit etc.

A real-life example of off-balance sheet exposure is Nirav Modi case. Letters of undertaking issued by Punjab National Bank were not mentioned as liabilities in the balance sheet of PNB. When Nirav Modi didn't pay his debts and creditors exercised the LOUs and PNB had to pay for the debts taken by Nirav Modi. Although this liability wasn't mentioned in the balance sheet of PNB, they had to pay for it.

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