What changed
RBI permitted Indian branches of foreign banks to reckon cash or unencumbered approved securities from interest-free HO funds or retained surplus as CRM for offsetting gross exposure to HO under LEF. These funds must be over and above other regulatory requirements, excluded from regulatory capital, and certified by statutory auditors. Derivative contracts executed before April 1, 2019 can be excluded from exposure computation.
What it means for you
Foreign banks can now reduce their LEF exposure to HO by using specific funds held under Section 11(2)(b)(i) as CRM, easing capital constraints. Banks must ensure these funds are not double-counted as capital and maintain continuous compliance, with annual undertakings to RBI. This provides a clearer framework for managing derivative exposures while maintaining prudential safeguards.
What you must do
- Identify and segregate funds from HO interest-free sources or retained surplus held under Section 11(2)(b)(i) for CRM designation.
- Get statutory auditor certification that these funds are over and above other regulatory/statutory requirements.
- Submit annual undertaking to DoS, RBI by March 31 confirming continuous maintenance of CRM-eligible funds.
- Disclose the CRM amount in Schedule 1 of the balance sheet with prescribed note.
- Ensure derivative contracts before April 1, 2019 are excluded from HO exposure computation if applicable.
Who it affects
Indian branches of foreign banks, Scheduled commercial banks (excluding RRBs) with foreign bank branches, Statutory auditors of foreign bank branches, RBI Department of Supervision
Can we use any funds held under Section 11(2) as CRM?
No, only cash or unencumbered approved securities from interest-free HO funds or remittable surplus retained in Indian books (reserves) are eligible, and they must be over and above other regulatory requirements.
Do we need to report the CRM amount separately?
Yes, disclose it in Schedule 1: Capital with a specific note stating the amount designated as CRM and that it is not reckoned for regulatory capital or other statutory requirements.
What about old derivative contracts?
Derivative contracts executed before April 1, 2019 can be excluded when computing derivative exposures to HO, as per the circular.