RBI mandates CVA buffers from April 2027, small banks exempt
The RBI just rolled out a fresh set of rules for banks, asking them to keep extra money aside in case their trading partners in derivative contracts can't pay up.
These changes, called the Credit Valuation Adjustment (CVA) framework, kick in from April 2027 and follow global Basel III standards.
If you're wondering, small finance banks, payments banks, and local area banks don't have to worry about these new rules.
₹10L/cr non-cleared banks hold capital
Banks with ₹10 lakh crore or less in non-centrally cleared derivatives get a simpler option: they must hold capital equal to their full risk amount, without counting any hedges.
Bigger players have to use the more detailed Basic Approach for CVA (BA-CVA), which comes in two flavors: a Full version that lets them count certain hedges like credit default swaps, and a Reduced version that doesn't.
Derivatives subsequently novated to a qualifying central counterparty (QCCP) are treated like direct QCCP transactions and excluded from covered transactions, and a clearing member must account for its CVA exposure to clients as bilateral trades.