The Reserve Bank of India (RBI) has released the draft Reserve Bank of India (Commercial Banks – Forthcoming Instructions) Amendment Directions, 2026. This draft proposes a comprehensive review and overhaul of the framework for computing Counterparty Credit Risk (CCR). It mandates the transition from the legacy Current Exposure Method (CEM) to the more risk-sensitive Standardised Approach for Counterparty Credit Risk (SA-CCR).
This transition was initially planned in 2016 but deferred. The current revision incorporates significant legal and regulatory developments since then, notably the Bilateral Netting of Qualified Financial Contracts Act, 2020, updated margining frameworks (2024), and clarifications from the Basel Committee on Banking Supervision (BCBS). The implementation date is proposed for April 1, 2027, with public comments open until July 1, 2026.
Applicable Entities
These Directions are applicable to all Commercial Banks (excluding Local Area Banks, Payments Banks, and Regional Rural Banks) operating in India.
1. Clarification on Scope of CCR (Banking and Trading Books)
Banks must uniformly apply the SA-CCR methodology to calculate exposure at default (EAD) for Counterparty Credit Risk across both their banking book and trading book exposures. The guidelines clarify the boundaries and application rules for derivatives and long settlement transactions regardless of the book in which they are held.
- Systems Integration: Ensure risk engines can seamlessly identify and pull transaction data from both banking and trading book systems for centralized CCR calculation.
- Data Quality Review: Conduct an audit of trade attributes across both books to ensure all fields required by SA-CCR formulas (e.g., trade type, maturity, notional) are accurately captured.
- Policy Update: Revise internal Risk Management policies to explicitly detail the unified scope of CCR application.
2. Treatment of Multiple Margin Agreements and Netting Sets
The guidelines explicitly incorporate the provisions of the Bilateral Netting of Qualified Financial Contracts Act, 2020, and the RBI Margining Directions, 2024. Banks must correctly map trades to specific, legally enforceable netting sets and accurately apply the effects of Initial Margin (IM) and Variation Margin (VM) agreements, especially where complex, overlapping, or multiple margin agreements exist with a single counterparty.
- Legal Review: Conduct a comprehensive review of all existing ISDA Master Agreements, CSAs (Credit Support Annexes), and netting agreements to confirm legal enforceability under the 2020 Netting Act.
- Netting Set Mapping: Update collateral management and risk systems to correctly partition trades into distinct netting sets based on legal agreements, rather than just counterparty ID.
- Margin Engine Enhancement: Upgrade calculation engines to handle the complex margin offsets allowed under SA-CCR for margined netting sets.
3. Bank as Clearing Member of SEBI-Recognised Exchanges
The draft provides specific guidance on how to calculate exposures when a bank acts as a clearing member for equity derivatives and commodity derivatives segments on SEBI-recognised stock exchanges. This aligns domestic exchange practices with the global capital framework for exposures to Central Counterparties (CCPs).
- Process Mapping: Map out the exact flow of trades, client margins, and house margins between the bank, clients, and the specific SEBI-recognised CCPs.
- CCP Exposure Calculation: Implement specific calculation logic for default fund contributions and trade exposures to Qualifying Central Counterparties (QCCPs) vs. Non-Qualifying CCPs, if applicable.
- Client Exposure Calibration: Adjust the calculation of CCR for clearing clients based on the margining models of domestic exchanges.
4 & 5. Treatment of Options (Deferment of Premium & Effective Notional)
The guidelines detail highly technical methodologies for handling options under SA-CCR. This includes specific formulas for calculating the “effective notional” of options (incorporating delta adjustments and supervisory volatility) and explicit rules for treating options where the premium payment is deferred.
- Quantitative Analysis Upgrade: Risk quants must review and update pricing and risk models to calculate the supervisory delta and effective notional exactly as prescribed by the new formulas.
- Product Control Review: Identify all option contracts with deferred premiums within the portfolio to ensure they are isolated and treated according to the new specific rules.
- System Testing (UAT): Conduct rigorous parallel testing comparing current option exposure calculations with the new SA-CCR effective notional calculations to assess capital impact.
6. Inclusion of Disclosure Templates for SA-CCR
Banks are required to adopt new, standardized disclosure templates for Counterparty Credit Risk. These templates are designed to provide market participants with clear, comparable information on a bank’s derivative exposures, netting benefits, and collateral usage under the SA-CCR framework.
- Regulatory Reporting Enhancement: Finance and Regulatory Reporting teams must design and implement the new data extraction workflows to populate the SA-CCR Pillar 3 disclosure templates.
- Automation: Automate the generation of these templates to ensure consistency and reduce manual errors during quarterly/annual reporting cycles.
- Stakeholder Communication: Prepare briefings for the Board and investors regarding potential changes to reported capital ratios and exposure metrics resulting from the transition to SA-CCR disclosures.