RBI brings new rule for banks to measure risks from derivatives, other such dealings

The Reserve Bank of India has set a Rs 25,000 crore threshold for banks to adopt new credit risk approaches. Banks with considerable derivative exposure or international presence will come under this rule. Lenders below this threshold can choose alternative risk measurement methods.

The Reserve Bank of India has set a Rs 25,000 crore threshold for banks required to adopt the Standardised Approach for Counterparty Credit Risk, bringing greater clarity to how lenders must measure risks arising from derivatives and other transactions.

The approach will apply to commercial banks that either have an international presence or report derivative outstanding of Rs 25,000 crore or more on a consolidated group-wide basis as of the reporting date, the RBI said on October 7.

Banks that do not meet these criteria will have the option of using either the Current Exposure Method (CEM) or the Standardised Approach for Counterparty Credit Risk (SA-CCR).

The central bank had issued draft Amendment Directions on SA-CCR on June 10 and invited comments from stakeholders. It said the feedback received on the proposal had been examined and relevant changes incorporated into the final framework.

The final rules have been issued through the Reserve Bank of India (Commercial Banks - Forthcoming Instructions) Amendment Directions, 2026.

The threshold was introduced following feedback from stakeholders on the draft rules. Banks had suggested that a quantitative benchmark could be used to identify lenders with relatively negligible derivative exposure. They had also proposed allowing such institutions to continue using the CEM to assess counterparty credit risk.

The RBI accepted the suggestion and included the threshold in the final directions.

The amendments modify the Reserve Bank of India (Commercial Banks - Forthcoming Instructions) Directions, 2025, which lay down the methodology banks must use to determine minimum capital requirements for counterparty credit risk.

Counterparty credit risk refers to the possibility that a party to a financial transaction could fail to meet its obligations before the transaction is settled. The framework is particularly relevant for banks with sizeable exposure to derivatives and other financial contracts.

The RBI's rules cover several categories of transactions that can create such exposure. These include over-the-counter derivatives, exchange-traded derivatives, securities financing transactions and long-settlement transactions in the banking book.

The SA-CCR framework provides a standardised methodology for calculating exposure arising from derivatives for regulatory capital purposes. By setting an applicability threshold, the RBI has distinguished between banks with substantial derivative books and those with comparatively smaller exposures.

The central bank has also issued the Reserve Bank of India (Commercial Banks-Credit Valuation Adjustment Framework) Directions, 2026.

The latest directions form part of the RBI's broader effort to strengthen the regulatory framework governing banks' capital requirements and their exposure to counterparty-related risks.