LIBOR Transition: Derivative Restructuring Norms Relaxed

What changed

Earlier, any change in a derivative contract's parameters was treated as restructuring under the October 2008 circular. Now, RBI explicitly exempts changes made solely to shift from LIBOR to an alternative reference rate from being classified as restructuring, as long as no other terms are altered.

What it means for you

Banks can amend derivative contracts to replace LIBOR with new reference rates without triggering restructuring-related prudential norms. This reduces operational and capital burden, allowing smoother transition for legacy contracts. Lenders must ensure only the reference rate changes and document compliance to avoid misclassification.

What banks were required to do at the time

• Review all derivative contracts referencing LIBOR and identify those needing reference rate changes.
• Ensure amendments are limited to the reference rate switch, keeping all other parameters unchanged.
• Maintain clear documentation for each contract to demonstrate compliance with the exemption condition.
• Update internal policies and training to reflect this relaxation for LIBOR transition cases.

Who it affects

Banks with derivative exposures tied to LIBOR, Treasury and risk management teams handling derivative contracts, Compliance and audit functions overseeing off-balance sheet exposures