What changed
RBI has issued an interim arrangement allowing banks' clearing exposure to QCCPs to be excluded from the 15% single-counterparty exposure limit. Previously, all exposures to a single counterparty were subject to this ceiling. Now, only non-clearing exposures (like loans, credit lines, investments in CCP capital, liquidity facilities) to QCCPs remain within the limit. Exposures to non-QCCPs continue to be fully subject to the 15% cap.
What it means for you
This change encourages banks to use central clearing for standardized OTC derivatives, reducing systemic risk. Banks can now increase their clearing business with QCCPs without breaching exposure limits, potentially lowering counterparty credit risk. However, RBI will monitor these exposures closely and may require risk mitigation if they become too high, so banks need robust reporting and risk management systems.
What you must do
- Identify which CCPs your bank deals with are QCCPs (currently CCIL, NSCCL, ICCL, MCX-SXCCL) and ensure compliance with the new exposure norms.
- Set up systems to report clearing exposures (trade and default fund) to each QCCP to RBI within seven days of each succeeding month, using the prescribed format.
- Be aware that RBI will monitor clearing exposures as a percentage of Tier 1 capital and may require risk mitigation plans if exposures are considered high.
- Review and segregate non-clearing exposures to QCCPs to ensure they remain within the 15% single-counterparty limit.
Who it affects
All scheduled commercial banks (excluding RRBs), Banks with OTC derivative exposures cleared through CCPs, Clearing Corporation of India Ltd. (CCIL), NSCCL, ICCL, MCX-SXCCL
What is a Qualifying CCP (QCCP)?
A QCCP is a central counterparty that meets international standards (CPSS-IOSCO Principles) and is recognized by its regulator. Currently, CCIL (by RBI) and NSCCL, ICCL, MCX-SXCCL (by SEBI) are QCCPs.
What exposures are exempt from the 15% single-counterparty limit?
Only clearing exposure, which includes trade exposure and default fund exposure as defined in RBI's July 2, 2013 circular, is exempt. Other exposures like loans, credit lines, investments in CCP capital, and liquidity facilities remain within the limit.
What happens if a QCCP loses its status?
If a regulator withdraws QCCP status, the CCP becomes a non-QCCP, and all exposures to it must be within the 15% single-counterparty exposure ceiling.