The Reserve Bank of India (RBI) has issued the Reserve Bank of India (Commercial Banks – Credit Valuation Adjustment Framework) Directions, 2026, through Circular No. RBI/DOR/2026-27/474, DOR.MRG.REC.No.246/00-00-001/2026-27, dated 7 October 2026. Issued under Section 35A of the Banking Regulation Act, 1949, the Directions establish a framework for calculating regulatory capital requirements against Credit Valuation Adjustment (CVA) risk. The Directions will take effect from 1 April 2027 and apply to specified commercial banks, excluding Small Finance Banks, Payments Banks and Local Area Banks.
The framework requires banks to calculate CVA risk capital requirements separately for covered transactions in their banking and trading books. It generally covers derivative exposures while excluding transactions undertaken directly with qualifying central counterparties and certain other specified transactions. Securities financing transactions are excluded from the CVA capital charge. Banks must ordinarily use the Basic Approach for CVA (BA-CVA), comprising reduced and full versions. However, banks whose consolidated group-wide notional amount of non-centrally cleared derivatives does not exceed ₹10 lakh crore may adopt an alternative treatment, subject to supervisory restrictions. Under that alternative, the CVA capital requirement equals 100% of the counterparty credit risk capital requirement, without recognition of CVA hedges.
The reduced BA-CVA calculates capital requirements without recognising hedges, while the full BA-CVA permits recognition of eligible counterparty credit spread hedges, subject to prescribed limitations. The Directions specify supervisory risk weights based on counterparty sectors and credit quality, maturity requirements, discount factors, hedging eligibility and capital treatment of internal and external CVA hedges. Risk-weighted assets are calculated by multiplying the applicable CVA capital charge by 12.5.
Banks must also make Pillar 3 disclosures using Table CVAA, Template CVA1 and Template CVA2, as applicable. The Directions include detailed illustrative calculations in Annex 1 and disclosure templates in Annex 2. Upon commencement on 1 April 2027, paragraph 85(3) of the Reserve Bank of India (Commercial Banks – Prudential Norms on Capital Adequacy) Directions, 2025 will stand repealed.
Reserve Bank of India
RBI/DOR/2026-27/474
DOR.MRG.REC.No.246/00-00-001/2026-27 | Dated: October 7, 2026
Reserve Bank of India (Commercial Banks – Credit Valuation Adjustment Framework) Directions, 2026
Introduction
In exercise of the powers conferred by Section 35A of the Banking Regulation Act, 1949, and all other provisions / laws enabling the Reserve Bank of India (‘RBI’) in this regard, the RBI being satisfied that it is necessary and expedient in the public interest so to do, hereby issues the Directions hereinafter specified.
Chapter-I: Preliminary
A. Short Title and Commencement
1. These Directions shall be called the Reserve Bank of India (Commercial Banks – Credit Valuation Adjustment Framework) Directions, 2026.
2. These Directions shall come into effect from April 1, 2027.
B. Applicability
3. These Directions shall be applicable to Commercial Banks (hereinafter collectively referred to as ‘banks’ and individually as a ‘bank’).
For the purpose of these Directions, ‘Commercial Banks’ means banking companies (other than Small Finance Banks, Payments Banks, and Local Area Banks), corresponding new banks, and the State Bank of India, as defined respectively under clauses (c), (da), and (nc) of Section 5 of the Banking Regulation Act, 1949.
C. Definitions
4. In these Directions, unless the context states otherwise, the terms herein shall bear the meanings assigned to them below:
i. ‘Banking Book’ shall have the same meaning as assigned to it in paragraph 4(1) of the Reserve Bank of India (Commercial Banks-Prudential Norms on Capital Adequacy) Directions, 2025.
ii. ‘Covered Transactions’ include all derivatives except those transacted directly with a qualified central counterparty (QCCP) and except those transactions meeting the conditions set out at paragraphs 85(6)(i)(f) and 85(6)(i)(g) of the Reserve Bank of India (Commercial Banks- Prudential Norms on Capital Adequacy) Directions, 2025 and paragraphs 16 (6) to 16(8) of the Reserve Bank of India (Commercial Banks – Forthcoming Instructions) Amendment Directions, 2026.
(3) ‘Credit Valuation Adjustment’ (CVA), is specified at a counterparty level, and reflects the adjustment to default risk-free price of a derivative or Security Financing Transaction (SFT) due to a potential default of the counterparty. It is an adjustment to the valuation of a derivative transaction or SFT to account for the credit risk of contracting parties. In the context of these Directions, it means regulatory CVA and may differ from accounting CVA, on account of the following:
a. regulatory CVA excludes the effect of the bank’s own default; and
b. constraints arising from best practices in accounting CVA which are imposed in computation of regulatory CVA.
(4) ‘CVA risk’ is the risk of losses arising from change in CVA values in response to changes in counterparty credit spreads and market risk factors that drive prices of derivative transactions and SFTs.
(5) ‘Derivative’ shall have the same meaning as assigned to it in Section 45U(a) of the RBI Act, 1934.
(6) ‘Netting Set’ shall have the same meaning as assigned to it in paragraph 4(23) of the Reserve Bank of India (Commercial Banks- Prudential Norms on Capital Adequacy) Directions, 2025.
(7) ‘Qualifying central counterparty’ (QCCP) shall have the same meaning as assigned to it in paragraph 4(29) of the Reserve Bank of India (Commercial Banks- Prudential Norms on Capital Adequacy) Directions, 2025.
(8) ‘Securities financing transaction’ (SFT) shall have the same meaning as assigned to it in paragraph 4(30) of the Reserve Bank of India (Commercial Banks- Prudential Norms on Capital Adequacy) Directions, 2025.
(9) ‘Trading Book’ shall have the same meaning as assigned to it in paragraph 4(34) of the Reserve Bank of India (Commercial Banks- Prudential Norms on Capital Adequacy) Directions, 2025.
5. All other expressions, unless defined herein, shall have the same meaning as have been assigned to them under the applicable Acts, rules / regulations made thereunder, or any statutory modification or re-enactment thereto, or as used in commercial parlance, as the case may be.
Chapter-II: Scope of Application
6. A bank shall calculate the capital requirements for Credit Valuation Adjustment (CVA) risk on a standalone basis for all covered transactions in both banking book and trading book. It includes CVA for a bank’s entire portfolio of covered transactions and eligible CVA hedges. Trades pertaining to SFTs shall be excluded from the calculation of the CVA capital charge.
Explanation: (1) Where a derivative transaction is subsequently novated to a QCCP, the resulting exposure upon novation shall be treated in the same manner as an exposure arising from a transaction undertaken directly with the QCCP and shall, accordingly, be excluded from the scope of Covered Transactions.
(2) A bank that is a clearing member of a CCP shall capitalise its CVA risk exposure to clients as bilateral trades, irrespective of whether the clearing member guarantees the trade or acts as an intermediary between the client and the CCP. However, to recognise the shorter close-out period applicable to cleared transactions, a clearing member may calculate its exposure to clients using an MPOR of at least five business days for the purpose of computing the exposure at default under the SA-CCR framework. The resulting exposure at default shall be used for the calculation of the CVA capital requirement.
(3) For the purposes of this paragraph, “Covered Transactions” shall include all eligible transactions of the bank globally, comprising transactions undertaken through both its domestic operations and overseas branches. Transactions booked through different branches of the bank with the same counterparty may be treated as part of a single netting set for CVA purposes only where the relevant netting agreement independently satisfies the applicable requirements for recognition as a netting agreement, including legal enforceability in all relevant jurisdictions in which such transactions are booked.
Chapter-III: Approaches for CVA Risk Capital Charge A. Basic Approach (BA-CVA)
7. (1) A bank shall, for computation of capital charge for CVA, use the Basic Approach for Credit Valuation Adjustment (BA-CVA), as provided in Chapter IV of these Directions, subject to the exception provided in Section B under Chapter III of these Directions.
(2) The detailed illustrations for computation of CVA Framework are given in Annex I.
B. Alternate Treatment
8. A bank whose aggregate notional amount of non-centrally cleared derivatives, on a consolidated group-wide basis, is less than or equal to ₹ 10 lakh crore as at the reporting date, may opt not to calculate its CVA capital requirements using the BA-CVA and may instead adopt an alternative treatment.
Provided that, the supervisory authority may not permit this option for a bank, if it determines that CVA risk resulting from the bank’s derivative positions materially contributes to the bank’s overall risk.
Explanation: Where a bank exceeds the prescribed threshold as at the reporting date, it shall apply the BA-CVA with effect from that reporting date.
9. The capital requirement for CVA risk under the alternate treatment is as follows:
1. A bank shall set its CVA capital requirement equal to 100 per cent of its capital requirement for counterparty credit risk (CCR), computed as per the Reserve Bank of India (Commercial Banks – Forthcoming Instructions) Amendment Directions, 2026.
2. A bank is not allowed to recognise CVA hedges.
3. A bank shall apply this treatment to its entire portfolio of covered transactions.
C. Capital Requirements and Risk Weighted Assets
10. The capital charge for CVA risk shall be calculated as under:
i. For a bank adopting the alternate treatment, the capital charge shall be calculated as per paragraph 9 of these Directions.
ii. For a bank adopting the reduced version of BA-CVA, the capital charge shall be calculated as per paragraph 13 of these Directions.
(3) For a bank adopting the full version of BA-CVA, the capital charge shall be calculated as per paragraph 20 of these Directions.
11. The risk-weighted assets for CVA risk shall be determined by multiplying the capital charge, calculated as provided in paragraph 10 of these Directions, by 12.5.
Chapter-IV: CVA risk capital charge under the BA-CVA
12. A bank can, at its discretion, choose to implement either the full version or the reduced version of BA-CVA. However, a bank shall calculate the reduced version of BA-CVA capital requirements, as it is also part of the full BA-CVA capital calculations as a conservative means to limit hedging recognition. The full version of BA-CVA recognises counterparty credit spread hedges and is intended for a bank that hedges CVA risk. The reduced version is designed to simplify BA-CVA implementation for a less sophisticated bank that does not hedge CVA risk.
