RBI aligns capital rules of banks with global norms

Mumbai: The Reserve Bank of India (RBI) Tuesday revised bank capital rules in line with global standards while spelling out clearly how lenders should measure risk that a trading partner fails to pay.

Banks that calculate capital at the group level must now include these trading-partner exposures from all entities they consolidate for capital rules.

RBI has updated the "add-on" percentages that banks use to estimate potential future exposure from off-balance-sheet trades such as derivatives.


Banks that act as clearing members on Sebi-recognised exchanges in equity and commodity derivatives must hold capital for these exposures using the updated add-ons.

When a bank clears trades through a regulated central clearing house for its own positions, it must apply a 2% risk weight to its trade exposure to that clearing house. The same 2% applies when the bank offers client clearing and is on the hook to reimburse client losses if the clearing house fails, RBI stated. If the bank is not obligated to reimburse clients-and it has an independent legal opinion confirming it is protected-it need not hold capital for that trade exposure, regulated added.

For contracts that regularly "reset" to zero market value on set dates, banks should treat the time to the next reset as the maturity; for interest rate contracts with more than a year to run, there is a minimum add-on of 0.50%.

The Reserve Bank of India also clarified that "precious metals" means silver, platinum and palladium, and "other commodities" include energy, farm products and base metals such as aluminium, copper and zinc.