Summary: The Reserve Bank of India (RBI), through Circular No. RBI/2026-27/286, DOR.MRG.REC.No.242/00-00-001/2026-27, dated 7 October 2026, has issued the Reserve Bank of India (Commercial Banks – Prudential Norms on Capital Adequacy) Twelfth Amendment Directions, 2026. The amendment modifies paragraph 85(6)(i)(a) and paragraph 213(2)(iv)(b)(i) of the Reserve Bank of India (Commercial Banks – Prudential Norms on Capital Adequacy) Directions, 2025, while deleting paragraph 213(2)(iv)(c), (d) and (e). The changes follow RBI’s review of requirements concerning legal opinions for clearing member banks and valuation adjustments for incurred Credit Valuation Adjustment (CVA) losses. The stated objective is to align the prudential framework with international standards.
The first amendment concerns the capital treatment of trade exposures to a Qualifying Central Counterparty (QCCP). Where a commercial bank acts as a clearing member of a QCCP for its own purposes, a risk weight of 2 per cent applies to its trade exposure arising from over-the-counter (OTC) derivatives, exchange-traded derivatives and securities financing transactions (SFTs). The same 2 per cent risk weight applies where a clearing member bank provides clearing services to clients and is obligated to reimburse those clients for losses on the relevant transactions if the QCCP defaults. The amendment therefore specifies the treatment of both proprietary clearing exposures and qualifying client-clearing exposures under the regulatory capital framework.
The second amendment revises the treatment of incurred CVA losses when determining Exposure at Default (EAD). Under the substituted paragraph 213(2)(iv)(b)(i), the CVA loss must represent the amount recognised by the bank as an incurred write-down in its financial statements in accordance with applicable accounting and valuation policies. Any reduction in EAD attributable to an incurred CVA loss must be calculated without considering offsetting debit valuation adjustments that have already been deducted from capital. Importantly, this reduction in EAD cannot be applied when determining the CVA risk capital requirement. Banks must also maintain adequate documentation establishing the amount of CVA recognised as an incurred write-down and reconciling that amount with their financial statements.
The third amendment deletes paragraph 213(2)(iv)(c), (d) and (e) of the existing Directions. These deletions operate alongside the revised provisions governing incurred CVA losses and the determination of EAD. The Amendment Directions have been issued under Section 35A of the Banking Regulation Act, 1949, and other enabling provisions. They take effect immediately from 7 October 2026. Commercial banks must accordingly apply the revised provisions to the specified QCCP trade exposures and incurred CVA adjustments, while ensuring that the relevant financial statement recognition, capital calculations and supporting documentation are consistent with the amended regulatory requirements.
RESERVE BANK OF INDIA
RBI/2026-27/286
DOR.MRG.REC.No.242/00-00-001/2026-27 | Dated: October 07, 2026
Reserve Bank of India (Commercial Banks – Prudential Norms on Capital Adequacy) Twelfth Amendment Directions, 2026
Please refer to paragraph 85(6) (i) and paragraph 213 (2) (iv) (b) of the Reserve Bank of India (Commercial Banks – Prudential Norms on Capital Adequacy) Directions, 2025, regarding the requirements for clearing member banks to obtain legal opinion and valuation adjustments for incurred CVA losses, respectively. On a review, it has been decided to amend these Directions to align them with international standards.
2. Accordingly, in exercise of the powers conferred by Section 35A of the Banking Regulation Act, 1949 (hereinafter called the Act) and all other provisions / laws enabling the Reserve Bank in this regard, the Reserve Bank, being satisfied that it is necessary and expedient in the public interest so to do, hereby, issues the Amendment Directions hereinafter specified.
3. (i) These instructions shall be called the Reserve Bank of India (Commercial Banks – Prudential Norms on Capital Adequacy) Twelfth Amendment Directions, 2026.
(ii) These Amendment Directions shall come into effect from the date of issue.
4. The Reserve Bank of India (Commercial Banks – Prudential Norms on Capital Adequacy) Directions, 2025, are amended as provided below.
4.1 In paragraph 85(6)(i), sub-paragraph (a) shall be replaced by the following, namely: –
“(a) Where a bank acts as a clearing member of a QCCP for its own purposes, a risk weight of 2 per cent shall be applied to the bank’s trade exposure to the QCCP in respect of OTC derivatives transactions, exchange traded derivatives transactions, and SFTs. Where the clearing member (bank) offers clearing services to clients, the 2 per cent risk weight also applies to the clearing member’s (bank) trade exposure to the QCCP that arises in cases where the clearing member (bank) is obligated to reimburse the client for any losses on such transactions in the event that the QCCP defaults.”.
4.2 In paragraph 213 (2) (iv) (b), sub-paragraph (i) shall be replaced by the following, namely: –
“(i) incurred CVA losses – For the purpose of determining the exposure at default (EAD), the CVA loss shall be the CVA recognised by the bank as an incurred write-down. Accordingly, a bank shall use the amount recognised in its financial statements in accordance with its applicable accounting and valuation policies. The reduction in EAD on account of incurred CVA loss shall be calculated without taking into account any offsetting debit valuation adjustments that have been deducted from capital. Such reduction in EAD shall not apply for the purpose of determining the CVA risk capital requirement. The bank shall maintain adequate documentation to demonstrate the amount of CVA included as an incurred write-down and its reconciliation to the financial statements.”.
4.3 Paragraph 213 (2) (iv) (c), (d), and (e) shall be deleted.
(Sunil T S Nair)
Chief General Manager
