What changed
Previously, banks assigned zero exposure value for counterparty credit risk on CCP exposures, assuming full daily collateralization. The new guidelines require banks to calculate capital for counterparty credit risk on exposures from OTC derivatives, exchange-traded derivatives, and securities financing transactions with CCPs. The rules are based on the Basel Committee's interim framework and amend the Master Circular on Basel III Capital Regulations.
What it means for you
Banks must now hold capital against CCP exposures, increasing risk-weighted assets and potentially raising capital requirements. This aligns India with global standards to mitigate systemic risk from CCP failures. The change incentivizes robust CCP risk management and supervision, as banks will factor CCP creditworthiness into their capital calculations.
What you must do
- Review and update internal systems to calculate counterparty credit risk capital for all CCP exposures from January 1, 2014.
- Ensure compliance with the amended Basel III Capital Regulations, including new definitions in paragraph 5.15.3.3.
- Assess the impact on capital adequacy ratios and adjust capital planning accordingly.
- Train risk and compliance teams on the new capital treatment for OTC derivatives, exchange-traded derivatives, and SFTs with CCPs.
Who it affects
All scheduled commercial banks (excluding Regional Rural Banks), Risk management departments, Compliance and capital planning teams
Why did RBI change the capital treatment for CCP exposures?
To reduce systemic risk by ensuring banks hold capital against CCP exposures, as CCP failures can be catastrophic. The change follows the Basel Committee's interim framework to incentivize robust CCP regulation and risk management.
When do these guidelines take effect?
The guidelines are effective from January 1, 2014, as stated in the RBI circular dated July 2, 2013.
What types of transactions are covered under the new capital requirements?
The requirements apply to banks' exposures from OTC derivatives, exchange-traded derivatives, and securities financing transactions (SFTs) with central counterparties.