Reserve Bank of India revises counterparty credit risk capital rules including new add-on factors and a 2 percent QCCP risk weight

The Reserve Bank of India has amended its capital adequacy directions for commercial banks to clarify the treatment of total counterparty credit risk (CCR) and largely align the framework with international standards, with effect from the date of issue. For consolidated capital computation, banks must include CCR exposures of all entities that are required to be consolidated under the capital adequacy framework’s scope of application. The amendment replaces the CCR add-on factors for market-related off-balance sheet items with revised, maturity-bucketed percentages across interest rate, exchange rate and gold, equities, precious metals except gold, and other commodities, and specifies that these add-ons apply to all outstanding CCR exposures. For contracts that reset market value to zero on specified dates, residual maturity is set to the next reset date, subject to a 0.50 percent floor for qualifying interest rate contracts with residual maturities over one year. Banks acting as clearing members of SEBI-recognised stock exchanges in equity and commodity derivatives must compute and maintain CCR capital charge under these rules, with the equities and commodity-related add-ons applying only in such cases, and “Precious Metals” and “Other Commodities” are defined for this purpose. Separately, where a bank is a clearing member of a QCCP, a 2 percent risk weight applies to trade exposure to the QCCP for OTC derivatives, exchange-traded derivatives, and SFTs, including client-clearing exposures where the bank must reimburse client losses on QCCP default, with an exemption where the bank is not obligated to reimburse and holds an independent written legal opinion supporting that position.