RBI revises counterparty credit risk rules to align with Basel norms

Current Context: RBI Prudential Norms on Capital Adequacy (Third Amendment), 2026 – issued on 10 March 2026.

• It revises Counterparty Credit Risk (CCR) rules to align with Basel III global standards.
• Banks must calculate CCR capital on a consolidated group basis, covering all banking/financial subsidiaries (insurance & non‑financial excluded).
• Add‑on factors updated: interest rate contracts tiered by maturity (0.25% <1 yr, 1.5% >5 yrs, floor 0.50%); commodities face highest (10–15%) due to volatility.
• Clearing members of SEBI‑recognized exchanges must hold explicit CCR capital for client exposures.
• Exposure to Qualifying Central Counterparties (QCCPs) gets a low 2% risk weight, incentivizing safer central clearing.
• If banks prove no liability for client defaults at QCCPs (via legal opinion), no capital charge applies.
• This move strengthens systemic stability, prevents domino defaults, and ensures banks hold capital against “invisible” risks in derivatives.

Question:

Q.1 According to the RBI capital adequacy amendment of 10 March 2026, what add-on factor applies to interest rate derivative contracts with maturity less than one year?
a) 0.10%
b) 0.25%
c) 0.50%
d) 1.00%

Answer: b) RBI introduced tiered add-on factors based on maturity. Contracts with less than one-year maturity carry a 0.25% add-on, reflecting relatively lower risk.