What changed
RBI updated four key circulars—Basel III Capital Regulations, NSFR guidelines, IRAC norms for advances, and the New Capital Adequacy Framework—to incorporate the legal framework for bilateral netting of QFCs. The amendments follow the notification of derivatives and repo/reverse repo as QFCs under the Act.
What it means for you
Banks can now legally net exposures under QFCs for capital and liquidity calculations, reducing counterparty risk and capital requirements. This aligns Indian prudential norms with international standards, potentially lowering regulatory capital for derivative and repo transactions. Lenders must update their internal systems to reflect netting benefits in reporting.
What you must do
- Review and update internal policies for capital adequacy and liquidity to reflect bilateral netting of QFCs.
- Ensure systems can calculate net exposures for derivatives and repo/reverse repo under the new framework.
- Train risk and compliance teams on the amended prudential guidelines from the four referenced circulars.
- Validate that netting arrangements meet the legal enforceability criteria under the Act.
Who it affects
All scheduled commercial banks (excluding RRBs), Risk management departments, Treasury and derivatives desks, Compliance and regulatory reporting teams
What qualifies as a QFC under this notification?
Derivatives and repo/reverse repo transactions as defined under Section 45(U) of the RBI Act, 1934, as notified by RBI on March 9, 2021.
When do these amendments take effect?
The revised instructions come into force with immediate effect from March 30, 2021.
Which specific circulars were amended?
Four circulars: Basel III Capital Regulations (July 1, 2015), NSFR guidelines (May 17, 2018), IRAC norms for advances (July 1, 2015), and NCAF (July 1, 2015).