What changed
RBI circular DBOD.FID.FIC.No 8/01.02.00/2010-11 dated November 2, 2010, advises that prudential norms for off-balance sheet exposure and bilateral netting of counterparty credit exposures, originally issued to banks on October 1, 2010, now apply mutatis mutandis to select AIFIs. This extends the same regulatory framework to Exim Bank, NABARD, NHB, and SIDBI.
What it means for you
AIFIs must now follow the same prudential norms as banks for netting counterparty credit exposures in off-balance sheet items, impacting their capital adequacy calculations. This ensures consistency in risk management across financial institutions and may require adjustments in their reporting and compliance systems.
What you must do
- Review the enclosed bank circular (DBOD No. BP.BC.48/21.06.001/2010-11) for detailed netting guidelines.
- Update internal policies and systems to apply bilateral netting norms to all off-balance sheet exposures.
- Train relevant staff on the new counterparty credit risk calculation methods.
- Ensure compliance with capital adequacy requirements under the revised framework.
Who it affects
Exim Bank, NABARD, NHB, SIDBI, Risk management teams at AIFIs, Compliance departments at AIFIs
What is bilateral netting of counterparty credit exposures?
It allows institutions to offset positive and negative replacement costs with the same counterparty to calculate a single net exposure, reducing capital requirements.
When do these norms take effect for AIFIs?
The circular is dated November 2, 2010, and applies immediately from that date, as it references the bank circular issued on October 1, 2010.
Which AIFIs are covered by this circular?
The circular is addressed to select All-India Term Lending and Refinancing Institutions: Exim Bank, NABARD, NHB, and SIDBI.