What changed
RBI replaced Table 14 in paragraph 75(2) of the 2025 SFB Capital Adequacy Directions with a new table specifying add-on factors for interest rate, exchange rate, gold, equities, precious metals, and other commodity contracts across three maturity buckets. It also updated note (b) to clarify residual maturity for contracts with reset dates, and added notes (e), (f), and (g) to cover all outstanding CCR exposures, clearing member obligations, and definitions of precious metals and other commodities. Additionally, paragraph 75(5)(i)(a) was substituted to prescribe a 2% risk weight for trade exposure to QCCPs for banks acting as clearing members, with conditions for capital relief if legally protected from client losses.
What it means for you
Small Finance Banks must now apply revised, generally higher add-on factors for CCR on derivatives and off-balance sheet items, increasing capital requirements for longer-duration and commodity-linked contracts. The alignment with international standards ensures consistency but may raise capital costs for banks active in equity derivatives, commodity derivatives, or precious metals. The QCCP risk weight clarification provides capital relief for clearing members not liable for client losses, but requires legal opinion documentation.
What you must do
- Update internal CCR computation systems with the new Table 14 add-on factors effective immediately.
- Review and reclassify all market-related off-balance sheet exposures by contract type and residual maturity.
- For clearing member banks, assess legal opinions to determine eligibility for the 2% risk weight and capital relief on QCCP trade exposures.
- Train risk and compliance teams on the revised definitions for precious metals (silver, platinum, palladium) and other commodities (energy, agriculture, base metals).
Who it affects
Small Finance Banks, Risk management departments of SFBs, Clearing member banks on SEBI-recognized exchanges, Compliance teams handling capital adequacy reporting
How does the amendment affect clearing member banks for QCCPs?
Clearing member banks must apply a 2% risk weight to trade exposure to QCCPs for their own purposes. Where the bank offers clearing services to clients and is obligated to reimburse clients for losses if the QCCP defaults, the 2% risk weight also applies. However, if the bank is not obligated to reimburse clients for such losses, no capital is required for that trade exposure, provided the bank obtains and maintains an independent, written, and reasoned legal opinion that it is protected from any such liability.