Current · Source: Reserve Bank of India · RBI/2026-27/26 · issued 27 Apr 2026 · ~2 min read
Quick answerRBI issues second amendment directions for commercial banks' credit risk management, focusing on unhedged foreign currency exposure (UCFE) and incremental capital requirements.
The rule, in the simplest words
Banks must check and watch how much foreign money risk (UCFE) a borrower has without protection, and keep enough extra money (capital) for it.
If a borrower's possible loss from foreign money risk is more than 75% of their earnings before interest and depreciation (EBID), banks must add 25 extra safety points (risk weight) to that loan.
Banks can use the Export Credit Guarantee Corporation (ECGC) seven-group list to judge country risk, until they build their own rating system.
Banks can let borrowers pay back working capital loans (short-term business loans) in small pieces or all at once (bullet repayment), as long as they follow other RBI rules.
How it plays out — a real example
A credit & lending officer in Indore reviews a jewelry exporter's loan file. She sees the exporter has a big foreign currency loan with no hedge (protection against rate changes). She calculates the potential loss at 80% of the firm's EBID (earnings before interest and depreciation), so she adds 25 extra risk weight to the loan, meaning the bank must set aside more capital for that exposure.
What changed
RBI modified paragraph 51 of the Directions to allow banks to use ECGC's seven-category classification for credit risk assessment.
RBI introduced incremental capital requirements for unhedged foreign currency exposure (UCFE) and modified paragraph 56 to require banks to assess and monitor UCFE.
RBI modified paragraph 58(3) and Table 1 to specify incremental capital requirements for UCFE, with a 25 percentage point increase in risk weight for exposures exceeding 75% potential loss/EBID.
What it means for you
Banks must assess and monitor UCFE and maintain adequate capital for the same, with incremental capital requirements applied to all exposures to entities with UCFE.
Banks have discretion to stipulate repayment of working capital loans (WCLs) in instalments or by way of 'bullet' repayment, subject to Reserve Bank of India (Commercial Banks - Asset Classification, Provisioning and Income Recognition) Directions, 2026 and Reserve Bank of India (Commercial Banks – Resolution of Stressed Assets) Directions, 2025.
What you must do
Review and update credit risk assessment processes to incorporate ECGC's seven-category classification.
Assess and monitor UCFE and maintain adequate capital for the same.
Apply incremental capital requirements to all exposures to entities with UCFE.
Stipulate repayment of WCLs in instalments or by way of 'bullet' repayment, subject to Reserve Bank of India (Commercial Banks - Asset Classification, Provisioning and Income Recognition) Directions, 2026 and Reserve Bank of India (Commercial Banks – Resolution of Stressed Assets) Directions, 2025.
Who it affects
Commercial banks, Export Credit Guarantee Corporation of India Ltd. (ECGC), Banks / consortia / syndicates
Built from our lineage records — each fact carries its provenance; missing history simply is not shown (never guessed).
What is the purpose of the second amendment directions?
The purpose is to modify the Reserve Bank of India (Commercial Banks – Credit Risk Management) Directions, 2025, focusing on unhedged foreign currency exposure (UCFE) and incremental capital requirements.
What are the key changes introduced by the second amendment directions?
The key changes include modification of paragraph 51, introduction of incremental capital requirements for UCFE, and modification of paragraph 58(3) and Table 1.
📜 This document’s life story (2 recorded events, each backed by RBI’s own words)
Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2026-27/26 · issued 27 Apr 2026. The plain-English explanation above is BankPulse’s own independent summary.
Stipulate repayment of WCLs in instalments or by way of 'bullet' repayment, subject to Reserve Bank of India (Commercial Banks - Asset Classification, Provisioning and Income Recognition) Directions, 2026 and Reserve Bank of India (Commercial Banks – Resolution of Stressed Assets) Directions, 2025.
💻 IT / Systems
Assess and monitor UCFE and maintain adequate capital for the same.
Apply incremental capital requirements to all exposures to entities with UCFE.
📜 Compliance
Review and update credit risk assessment processes to incorporate ECGC's seven-category classification.
Grouped from the action items above — a single circular may involve more than one team.
Worked example & action-note template
Example: if you are a Compliance officer at a bank this circular applies to (Commercial banks, Export Credit Guarantee Corporation of India Ltd. (ECGC), Banks / consortia / syndicates), your first concrete step on “RBI Amends Credit Risk Management Directions” is: “Review and update credit risk assessment processes to incorporate ECGC's seven-category classification.” (RBI issued this 27 Apr 2026).
Action required: Review and update credit risk assessment processes to incorporate ECGC's seven-category classification.
Action required: Assess and monitor UCFE and maintain adequate capital for the same.
Action required: Apply incremental capital requirements to all exposures to entities with UCFE.
Action required: Stipulate repayment of WCLs in instalments or by way of 'bullet' repayment, subject to Reserve Bank of India (Commercial Banks - Asset Classification, Provisioning and Income Recognition) Directions, 2026 and Reserve Bank of India (Commercial Banks – Resolution of Stressed Assets) Directions, 2025.
Owner: ____________ Target date: ____________
Board/committee approval needed? Y / N
Evidence filed in compliance register on: ____________
Built only from this circular’s own published fields — not legal advice; always confirm against the official RBI source.
💬 Banker Discussion
Discuss this circular with fellow bankers — reply, upvote what helps, report what doesn’t belong. Be professional; no client data. Views are the commenter’s own, not BankPulse’s.
BankPulse Compliance Evidence Pack — generated 02 Aug 2026 · status cross-checked against RBI’s official withdrawal register (refreshed weekly). Official RBI source: https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=13397&Mode=0 — Plain-English summary by BankPulse (bankpulse.ai), reviewed by our expert reviewer, CA Amit Jain. Independent platform, not affiliated with the Reserve Bank of India; is our own plain-English paraphrase, not RBI’s original wording.
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