The Reserve Bank of India issued a third amendment to its Small Finance Banks capital adequacy directions, revising the treatment of total counterparty credit risk (CCR) to provide greater clarity and largely align the framework with international standards. The update replaces the add-on factor table for market-related off-balance sheet items and adjusts the capital treatment of clearing members’ trade exposures to qualifying central counterparties (QCCPs). Under the substituted Table 14, add-on factors are set by residual maturity for interest rate contracts (0.25% for one year or less, 0.50% for over one year to five years, and 1.50% for over five years), exchange rate contracts and gold (1.00%, 5.00%, 7.50%), equities (6.00%, 8.00%, 10.00%), precious metals except gold (7.00%, 7.00%, 8%), and other commodities (10.00%, 12.00%, 15.00%). For contracts that reset such that market value is zero on specified dates, residual maturity is set to the time until the next reset date, with a 0.50% floor for interest rate contracts with residual maturities above one year that meet these criteria. Add-on factors apply to all outstanding CCR exposures, and banks acting as clearing members of Securities and Exchange Board of India (SEBI)-recognised stock exchanges in equity and commodity derivatives must compute and maintain CCR capital charge under the framework, with the equities and commodities add-on factors applicable only in those cases; the amendment also specifies commodity category definitions. For QCCPs, a 2% risk weight applies to a clearing member bank’s trade exposure for OTC derivatives, exchange-traded derivatives and securities financing transactions, including where client clearing is offered and the bank is obligated to reimburse client losses on QCCP default; no capital is required for such client trade exposures where the bank is not obligated to reimburse losses, provided it obtains and maintains an independent, written, reasoned legal opinion confirming protection from such liability.
Reserve Bank of India 2026-03-10
Reserve Bank of India updates small finance bank capital adequacy rules on counterparty credit risk add-on factors and QCCP clearing exposures
The Reserve Bank of India amended its Small Finance Banks capital adequacy directions, aligning counterparty credit risk treatment with international standards. Key changes include revised add-on factors for market-related off-balance sheet items and adjusted capital treatment for clearing members' trade exposures to qualifying central counterparties. The amendment specifies risk weights and conditions for clearing member banks' trade exposures, including a 2% risk weight for certain exposures to qualifying central counterparties.