The Reserve Bank of India amended its capital adequacy rules for commercial banks to align the treatment of exposures to qualifying central counterparties (QCCPs) and incurred credit valuation adjustment (CVA) losses with international standards. The amendments took effect on issuance and mirror related changes to the prudential frameworks for other regulated bank categories and All India Financial Institutions. A 2% risk weight applies to a clearing member bank’s trade exposures to a QCCP from over-the-counter derivatives, exchange traded derivatives and securities financing transactions. It also covers client clearing exposures where the bank must reimburse the client for losses if the QCCP defaults. For exposure at default calculations, incurred CVA losses must equal the CVA recognized as an incurred write-down under the bank’s applicable accounting and valuation policies. Banks must disregard offsetting debit valuation adjustments deducted from capital, may not apply the exposure reduction when determining the CVA risk capital requirement, and must document and reconcile the write-down to their financial statements.
Reserve Bank of India revises commercial bank capital treatment for QCCP exposures and incurred CVA losses
The Reserve Bank of India revised commercial bank capital rules for QCCP exposures and incurred CVA losses, aligning them with international standards. The amendments apply a 2% risk weight to specified proprietary and client clearing exposures and prescribe how recognized CVA write-downs reduce exposure at default. They took effect on issuance.