What changed
The effective date for the credit valuation adjustment (CVA) risk capital charge on OTC derivatives has been shifted from January 1, 2014 to April 1, 2014. This deferral is because the mandatory inter-bank forex forward guaranteed settlement through CCIL is taking longer than expected. The capital requirements for banks' exposures to central counterparties (CCPs) remain effective from January 1, 2014 as previously advised.
What it means for you
Banks get additional time until April 2014 to compute and hold capital for CVA risk on OTC derivatives, easing immediate compliance pressure. However, the CCP exposure guidelines kick in from January 2014, so banks must still prepare for that deadline. The delay reflects RBI's pragmatic approach to align regulatory timelines with market infrastructure readiness.
What you must do
- Update internal compliance calendars to reflect CVA risk capital charge effective April 1, 2014 instead of January 1, 2014.
- Continue preparations for capital requirements on CCP exposures, which remain effective from January 1, 2014.
- Review OTC derivative portfolios to ensure CVA capital computation systems are ready by the new deadline.
- Communicate the revised timeline to risk management and treasury teams to avoid confusion.
Who it affects
All scheduled commercial banks (excluding Local Area Banks and Regional Rural Banks), Treasury and risk management departments handling OTC derivatives, Banks with significant OTC derivative exposures
Why was the CVA risk capital charge deferred?
The deferral is due to delays in implementing mandatory inter-bank forex forward guaranteed settlement through CCIL, which was expected to be ready by January 2014.
Does this affect the CCP exposure guidelines?
No. The capital requirements for banks' exposures to central counterparties remain effective from January 1, 2014 as per the July 2, 2013 circular.
What is the new effective date for CVA risk capital charge?
The CVA risk capital charge on OTC derivatives will now be effective from April 1, 2014 instead of January 1, 2014.