What changed
RBI has modified select instructions in seven existing circulars/directions covering Standalone Primary Dealers, UCBs, State/DCCBs, LABs, RRBs, NBFCs (ND-SI and D), and HFCs to incorporate the legal framework for bilateral netting of qualified financial contracts (QFCs). The changes reflect the notification of derivatives and repo/reverse repo as QFCs under the Act.
What it means for you
Banks and lenders can now legally enforce bilateral netting for derivatives and repo/reverse repo transactions, reducing counterparty credit risk and potentially lowering capital requirements. This aligns Indian prudential norms with international best practices and the 2020 Act, improving balance sheet efficiency for affected entities.
What you must do
- Review the specific annexes for your entity type to understand amended prudential norms on capital adequacy and risk weights.
- Update internal policies and systems to reflect enforceable bilateral netting for derivatives and repo/reverse repo transactions.
- Train risk and compliance teams on the revised netting framework under the Bilateral Netting of Qualified Financial Contracts Act, 2020.
- Ensure capital adequacy calculations incorporate the new netting benefits as per the amended circulars.
Who it affects
Standalone Primary Dealers, Primary (Urban) Co-operative Banks, State and District Central Cooperative Banks, Local Area Banks, Regional Rural Banks, Systemically Important Non-Deposit taking NBFCs (NBFC-ND-SIs), Deposit taking NBFCs (NBFC-Ds), Housing Finance Companies (HFCs)
When do these amendments take effect?
The revised instructions come into force with immediate effect from the date of the circular, March 31, 2022.