What changed
RBI addressed bank queries on UFCE guidelines. It now requires quarterly self-certification of UFCE data (preferably internally audited) with annual statutory audit, and exempts overseas branches/subsidiaries from statutory audit initially. RBI will request FEDAI to compute standardized USD-INR annual volatility for consistent loss calculation. For unlisted firms, latest audited quarterly or yearly EBID must be used, with yearly figure at least from last financial year. Incremental provisioning is based on standard asset exposure amount and incremental capital on credit risk exposure amount.
What it means for you
Banks can expect FEDAI-published volatility, reducing inter-bank variation in loss estimates. The audit flexibility eases compliance for corporates, especially private/unlisted ones. Clearer exposure bases for capital and provisioning ensure consistent application across banks. This reduces operational burden while maintaining risk sensitivity.
What you must do
- Obtain UFCE data quarterly on self-certification basis; ensure annual statutory audit for authenticity.
- Use FEDAI-published USD-INR volatility once available; until then, compute per guidelines.
- For unlisted entities, use latest audited quarterly or yearly EBID; yearly figure must be at least last financial year.
- Apply incremental provisioning on standard asset exposure amount and incremental capital on credit risk exposure amount.
- Update internal policies to reflect these clarifications and train credit teams on revised UFCE assessment.
Who it affects
All scheduled commercial banks (excluding RRBs and LABs), Corporate borrowers with unhedged foreign currency exposure, Overseas branches/subsidiaries of Indian banks, Statutory auditors of borrowing entities
How often must UFCE data be audited?
Quarterly self-certification is required (preferably internally audited), with annual statutory audit. Overseas branches/subsidiaries are initially exempt from statutory audit.
What volatility rate should banks use for UFCE loss calculation?
RBI will request FEDAI to compute USD-INR annual volatility based on RBI reference rate. Until then, banks can compute it per the guidelines.
How to handle EBID for unlisted companies without quarterly audited results?
Use the latest audited quarterly or yearly results available. The yearly EBID must be at least from the last financial year.