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Informist, Friday, Aug. 7, 2026

 

--RBI issues draft directions on credit valuation adjustment framework

--RBI:Seek feedback on credit valuation adjustment framework draft by Aug 28

 

MUMBAI – The Reserve Bank of India Friday released draft directions for an enhanced credit valuation adjustment framework in line with final Basel-III norms. The proposed framework allows banks to adopt the basic approach recommended by the Basel Committee on Banking Supervision and will replace domestic guidelines effective since 2011.

The adjustment is the capital charge for banks to hold in case a counterparty defaults on a derivative. The revised instructions clarify the eligibility and recognition of credit valuation adjustment hedges, increase the sensitivity of supervisory risk weights for counterparties by sector and credit quality, and separate systematic and idiosyncratic credit valuation adjustment risk components in the full Basic Approach for Credit Valuation Adjustment calculation, the RBI said.

"These revisions enhance risk sensitivity and improve consistency in the CVA framework," the RBI said. The central bank has invited comments on the draft directions till Aug. 28. Banks may choose to implement either the full or reduced version of the Basic Approach for Credit Valuation Adjustment. Alternatively, in line with the Basel committee guidelines, banks with an insignificant volume of non-centrally cleared derivatives may calculate their credit valuation adjustment capital charge as 100% of their counterparty credit risk capital charge.

 

The full version of the Basic Approach for Credit Valuation Adjustment recognises counterparty credit spread hedges. This version is intended for a bank that hedges credit valuation adjustment risk. "The reduced version is designed to simplify BA-CVA implementation for a less sophisticated bank that does not hedge CVA risk," the RBI said in the draft direction. 

The final directions will come into effect from Apr. 1.  End

 

Reported by Aaryan Khanna and Nandini Sinha

Edited by Rajeev Pai

 

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