What changed
RBI issued new capital adequacy norms for banks' exposures to central counterparties (CCPs) like CCIL and stock exchange clearing houses. Exposures from derivatives and securities financing transactions (e.g., CBLOs, repos) now get zero counterparty credit risk weight, assuming full daily collateralization. Margin deposits and collateral kept with CCPs attract risk weights: 20% for CCIL, and rating-based for others under the New Capital Adequacy Framework.
What it means for you
Banks can reduce capital held against CCP exposures from derivatives and securities financing, freeing up capital for other uses. However, margin deposits with CCIL require 20% risk weight, impacting capital allocation. The one-year review means banks must monitor CCP risk management and collateral quality closely.
What you must do
- Reassess capital adequacy calculations for CCP exposures, applying zero risk weight to derivatives and securities financing trades.
- Assign 20% risk weight to margin deposits with CCIL and rating-based weights for other CCPs.
- Ensure existing exposure limits (e.g., gap limits, PV01 limits) continue to apply to exchange-traded transactions.
- Prepare for the one-year review by documenting CCP collateral and risk management systems.
Who it affects
All scheduled commercial banks (excluding RRBs and LABs), Banks using CCIL for clearing, Banks trading currency futures, interest rate futures, or other exchange-traded derivatives, Banks involved in securities financing transactions like CBLOs and repos
Why do CCP exposures get zero risk weight for derivatives?
RBI presumes CCPs fully collateralize exposures daily, eliminating counterparty credit risk, so no capital is needed for these trades.
What risk weight applies to margin deposits with CCIL?
Margin deposits with CCIL get a 20% risk weight. For other CCPs, risk weights depend on their credit ratings under the New Capital Adequacy Framework.
Will existing exposure limits change for exchange-traded transactions?
No, existing limits like gap limits for forex and PV01 limits for interest rate risk continue to apply to exchange-traded transactions as well.