What changed
RBI issued two notifications amending earlier capital adequacy rules for NBFCs. The counterparty credit risk from securities financing transactions (CBLOs) with CCIL now gets zero risk weight. But any deposits or collaterals placed by NBFCs with CCIL will carry a 20% risk weight.
What it means for you
NBFCs can now treat CBLO exposures to CCIL as risk-free for capital adequacy purposes, freeing up capital that would otherwise be held against counterparty risk. However, the cash or collateral posted with CCIL still requires a 20% risk weight, so NBFCs must factor that into their capital calculations. This aligns NBFC treatment with the presumption that CCPs are fully collateralized daily.
What you must do
- Update your capital adequacy computation to apply zero risk weight to counterparty credit risk from CBLO transactions with CCIL.
- Ensure deposits or collaterals kept with CCIL are assigned a 20% risk weight in your risk-weighted assets.
- Review your NBFC's exposure to CBLOs and adjust capital planning accordingly.
- Amend internal policies and reporting templates to reflect these risk weight changes.
Who it affects
All NBFCs dealing in CBLOs, NBFCs with exposure to CCIL, Risk management and compliance teams at NBFCs
Why does CBLO lending get zero risk weight?
RBI presumes that CCIL, as a central counterparty, fully collateralizes its exposures daily, eliminating counterparty credit risk for NBFCs.
Does this mean all CBLO-related exposures are risk-free?
No. Only the counterparty credit risk from the transaction itself gets zero weight. Any deposits or collaterals you keep with CCIL still attract a 20% risk weight.