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Reserve Bank of India (Scheduled Commercial Banks - Capital Charge for Credit Risk – Standardised Approach) Directions, 2025 – Draft
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RBI/2025-26/ DD MM, YYYY Reserve Bank of India (Scheduled Commercial Banks - Capital Charge for Credit Risk – Standardised Approach) Directions, 2025 – Draft for Comments The Basel Committee on Banking Supervision in its final ‘Basel III framework (Basel III: Finalising post-crisis reforms in December 2017)’, permits two broad methodologies for calculating risk-based capital requirements for credit risk, viz., the Standardised Approach (SA) and the Internal Ratings Based approach (IRB). The key intention of the revised framework is to ensure prudent and credible calculation of risk-weighted assets that would facilitate arriving at capital ratios for banks in a comparable and risk-sensitive manner. Reserve Bank has decided to implement the Standardised Approach (SA) for credit risk for banks under its jurisdiction. 2 Powers Exercised and Commencement 2.1 In exercise of the powers conferred by the Sections 21 and 35A of the Banking Regulation Act, 1949, the Reserve Bank of India (hereinafter called the ‘Reserve Bank’ or RBI) being satisfied that it is necessary and expedient in the public interest and in the interest of depositors to do so, hereby, issues these instructions hereinafter specified. 2.2 These instructions shall come into effect from April 01, 2027. These instructions shall apply, unless specified otherwise, to the banking book exposures of all Scheduled Commercial Banks (excluding Small Finance Banks, Payments Banks and Regional Rural Banks), hereinafter called banks. 4.1 In these instructions, unless the context otherwise requires, the terms herein shall bear the meanings assigned to them below: a) “Capital market exposure” shall be as defined in ‘Master Circular – Exposure Norms’ dated July 1, 2015, as amended from time to time. b) “Commercial Real Estate exposure” means an exposure that is not a residential real estate exposure. c) “Commitment” with reference to a bank’s off-balance sheet items means any contractual arrangement that has been offered by the bank and accepted by its counterparty to extend credit, purchase assets or issue credit substitutes. It includes any such arrangement that can be unconditionally cancelled by the bank at any time without prior notice to the obligor. It also includes any such arrangement that can be cancelled by the bank if the obligor fails to meet conditions set out in the facility documentation, including conditions that must be met by the obligor prior to any initial or subsequent drawdown under the arrangement. d) “Commodities finance” means short-term lending to finance reserves, inventories, or receivables of exchange-traded commodities (eg crude oil, metals, or crops), where the loan shall be repaid from the proceeds of the sale of the commodity and the borrower has no independent capacity to repay the loan. e) “Consumer Credit” is as defined in Banking Statistics I (Harmonised Definitions) on the RBI’s website. f) ‘Counterparty banks’ mean other Commercial banks, Urban Co-operative banks, Rural Co-operative banks and All India Financial Institutions (AIFIs) on which a bank takes exposures. g) “Equity exposures” mean equity of the issuer and exposures as defined in Appendix 1 to this circular. h) “General Preferential treatment” means exposures to banks with an original maturity of three months or less, as well as exposures to banks that arise from the movement of goods across national borders with an original maturity of six months or less (this may include on-balance sheet exposures such as loans and off-balance sheet exposures such as self-liquidating trade-related contingent items). i) “Loan to Value (LTV)” ratio means the ratio of the outstanding loan amount, including any accrued and unrealised interest, to the value of the collateral security calculated in terms of paragraphs 16.1.2 and 16.1.3 of these guidelines. j) “Local Government Bodies” mean institutions of the local self-governance, which look after the local planning, development and administration of a specified area or community such as villages, towns, or cities. k) “Member lending Institutions (MLIs)” shall have the same meaning as defined in relevant credit guarantee schemes of the Government of India. l) “Micro, Small and Medium Enterprises” (MSMEs) mean the enterprises as defined in the MSMED Act, 2006 and the amendments, if any, carried out therein by the Government of India from time to time. m) “Multilateral Development Bank (MDB)” means an institution, created by a group of countries that provides financing and professional advice for economic and social development projects. MDBs have large sovereign memberships and may include both developed countries and/or developing countries. Each MDB has its own independent legal and operational status, but with a similar mandate and a considerable number of joint owners. n) “Non-performing assets (NPAs)” shall be as defined in ‘Master Circular on Prudential Norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances’ dated April 01, 2025, as amended from time to time. o) “Object finance” means the method of funding the acquisition of equipment (eg ships, aircraft, satellites, railcars, and fleets) where the repayment of the loan is dependent on the cash flows generated by the specific assets that have been financed and pledged or assigned to the lender p) “Operational phase” means the phase in which the project has attained date of commencement of commercial operation (DCCO), and the borrower entity has (i) a positive net cash flow that is sufficient to cover any remaining contractual obligation, and (ii) started repayment of principal dues. q) “Other Capital Instruments” mean capital instruments issued by the investee entity which are not included in Equity exposures as defined in sl. no. (g) above. r) “Personal loans” is as defined in Banking Statistics I (Harmonised Definitions) on the RBI’s website. s) “Pre-operational phase” of a project means the phase before the operational phase. t) “Project finance” means the method of funding in which the lender looks primarily to the revenues generated by a single project, both as the source of repayment and as security for the loan. This type of financing is usually for large, complex and expensive installations. Project finance may take the form of financing the construction of a new capital installation, or refinancing of an existing installation, with or without improvements. u) “Real Estate” means an immovable property that is land, including agricultural land and forest, or anything treated as attached to land, in particular buildings, in contrast to being treated as movable property. v) “Residential Real Estate exposure” means an exposure that is secured by a property that has the nature of a dwelling and satisfies all applicable laws and regulations enabling the property to be occupied for housing purposes. Indicative examples of such exposures are exposures secured by houses, apartments, etc. w) “Specialised lending exposure” for the purpose of risk weights means a lending which possesses some or all of the following characteristics, either in legal form or economic substance:
x) “Speculative unlisted equity exposures” mean equity investments in unlisted companies that are invested for short-term resale purposes or are considered venture capital or similar investments which are subject to price volatility and are acquired in anticipation of significant future capital gains. However, banks investment in unlisted equities of corporate clients with which the bank has or intends to establish a long-term business relationship and debt-equity swaps for restructuring purpose would not be treated as speculative unlisted equity exposures. y) “Subordinate Debt” means debt instruments of the issuer which are subordinate in claim to the senior debt. z) “Transactors” mean obligors in relation to facilities such as credit cards and charge cards where the balance has been repaid in full at each scheduled repayment date for the previous 12 months. Obligors in relation to overdraft facilities would also be considered as transactors if there have been no drawdowns over the previous 12 months. 4.2 All other expressions, unless defined herein, shall have the same meaning as have been assigned to them under the Banking Regulation Act,1949 or the Reserve Bank of India Act, 1934 or any statutory modification or re-enactment thereto or as used in commercial parlance, as the case may be. CHAPTER II – GENERAL INSTRUCTIONS 5.1 Under the standardised approach (SA), credit exposures shall be risk weighted either as per the risk weights prescribed for specific categories of exposures or as per the ratings assigned by eligible credit rating agencies (ECRAs1), as stipulated in this circular. Risk weighted assets are calculated as the product of the standardised risk weights and the exposure amount. The exposures shall be risk-weighted net of specific provisions (including partial write-offs). The requirements covering the use of external ratings are set out in chapter IV of these guidelines. The credit risk mitigation techniques that are permitted to be recognised under the standardised approach are set out in chapter V of these guidelines. Various facets of the computation of capital charge for credit risk under SA are given in this circular. 5.2 Risk weights prescribed under this regulation shall be without prejudice to any action that the Reserve Bank may take relating to specific exposures on account of macroprudential considerations, if any. 6.1 Banks shall perform due diligence to ensure that they have an adequate understanding, at origination and thereafter on a regular basis (at least annually), of the risk profile and characteristics of their counterparties. For exposures to entities belonging to consolidated groups, due diligence shall be performed at the solo level to which there is a credit exposure. In evaluating the repayment capacity of the solo entity, banks shall take into account the support of the group and the potential for it to be adversely impacted by problems in the group. 6.2 Banks shall perform due diligence to ensure that the external ratings appropriately and conservatively reflect the creditworthiness of the counterparties. The sophistication of the due diligence shall be appropriate to the size and complexity of banks’ activities. If the due diligence analysis carried out by the bank reflects higher risk characteristics than that implied by the external rating bucket of the exposure, bank may assign a risk weight at least one bucket higher than the “base” risk weight determined by the external rating. Exemption: The due diligence requirements do not apply to exposures to Sovereigns/ Central Banks covered under paragraphs 7 and 8 below. 6.3 Due diligence analysis must never result in the application of a risk weight lower than the applicable base risk weight as per the external credit rating agencies. 6.4 In order to reduce subjectivity in decision making on due diligence criteria, banks shall put in place an internal Standard Operating Procedure (SOP) comprising internal policies, processes, systems and controls to ensure that the appropriate risk weights are assigned to counterparties. Banks shall demonstrate to the supervisor that due diligence has been performed as per the internal SOP approved by the Board. As part of the supervisory review, RBI may take supervisory measures where such due diligence analyses have not been done appropriately. 6.5 Probability of Default (PD) may serve as an appropriate reference to align the assigned risk weights with the underlying credit risk. Comparison of the internally assessed PD for the exposure and the PD of the bank loan rating assigned by the credit rating agency which is used for risk weighting may serve as an objective parameter to assess the appropriateness of risk weight. Further, banks may give proper consideration to the climate-related financial risks as part of the counterparty due diligence. CHAPTER III – EXPOSURE CLASSES AND RISK WEIGHTS 7 Exposures to Domestic Sovereigns 7.1 Both fund based and non-fund-based claims on the central government shall attract a zero per cent (0%) risk weight. Central Government guaranteed claims shall also attract a zero per cent (0%) risk weight. 7.2 Direct loan / credit / overdraft exposure, if any, of banks to the State Governments and investments in State Government securities shall attract zero per cent (0%) risk weight. However, claims guaranteed by the State Governments shall attract 20 per cent risk weight. 7.3 The risk weight applicable to claims on central government exposures shall also apply to the claims on the Reserve Bank of India and DICGC. 7.4 For credit facilities extended under schemes guaranteed by Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), Credit Risk Guarantee Fund Trust for Low Income Housing (CRGFTLIH) and individual schemes under National Credit Guarantee Trustee Company Ltd. (NCGTC) which are backed by an unconditional and irrevocable guarantee provided by Government of India, a zero percent (0%) risk weight shall be applicable to the extent of guarantee coverage subject to the following conditions2: i) Prudential Aspects: The guarantees provided under the respective schemes should comply with the requirements for credit risk mitigation framework covered under chapter V of these guidelines. ii) Restrictions on permissible claims: Where the terms of the guarantee schemes restrict the maximum permissible claims through features like specified extent of guarantee coverage, clause on first loss absorption by member lending institutions (MLI), payout cap, etc., the zero per cent (0%) risk weight shall be restricted to the maximum permissible claim and the residual exposure shall be subjected to risk weight as applicable to the counterparty in terms of this circular. iii) In case of a portfolio-level guarantee, the extent of exposure subjected to first loss absorption by the MLI, if any, shall be subjected to full capital deduction and the residual exposure shall be subjected to risk weight as applicable to the counterparty, on a pro rata basis. The maximum capital charge shall be capped at a notional level arrived at by treating the entire exposure as unguaranteed. 7.5 Further, subject to the aforementioned prescriptions at paragraph 7.4 (i) to (iii) above, any future scheme launched under any of the aforementioned Trust Funds, in order to be eligible for zero percent (0%) risk weight, shall provide for settlement of the eligible guaranteed claims within thirty days from the date of lodgment, and the lodgment shall be permitted within sixty days from the date of default. 7.6 The claims on Export Credit Guarantee Corporation of India (ECGC) shall attract a risk weight of 20 per cent. 7.7 The above risk weights for both direct claims and guaranteed claims shall be applicable as long as they are classified as ‘standard’ / performing assets. Where such Central Government guaranteed exposures are classified as non-performing, they shall attract risk weights as applicable to NPAs3, which are detailed in paragraph 17. 7.8 The risk weights prescribed under paragraphs 7.1 to 7.6 shall be applied if such exposures are denominated in Indian Rupees and also funded in Indian Rupees. 8 Exposures to Foreign Sovereigns and Foreign Central Banks 8.1 Exposures to foreign sovereigns and foreign central banks shall attract risk weights as per the ratings assigned4 to those sovereigns / sovereign claims and Central Bank/ Central Bank claims by international rating agencies as follows: Note: The modifiers “+” or “-” have been subsumed with the main rating category 8.2 If a foreign jurisdiction has exercised its national discretion to allow its banks to risk weight their domestic currency exposures to their sovereign and central bank lower than what is accorded as per the external ratings in Table 1, provided that such exposures are funded in the same currency, then Indian banks can also use the same risk weight for similar exposures in those jurisdictions. However, in case a Host Supervisor requires a more conservative treatment to such claims in the books of the Indian banks, they shall adopt the requirements prescribed by the Host Country supervisors for computing capital adequacy. 9 Exposures to Public Sector Entities (PSEs) 9.1 Exposures to domestic public sector entities and local government bodies shall be risk weighted in a manner similar to claims on Corporates as per section 12. Such exposure shall, however, be subject to the restrictions on bank lending to Government owned entities prescribed in ‘Master Circular- Loans and Advances – Statutory and Other Restrictions’ dated July 1, 2015, as amended from time to time. 9.2 Exposures to foreign PSEs shall be risk weighted as per the rating assigned by the international rating agencies as under: 10 Exposures to MDBs, BIS and IMF 10.1 Exposures to the Bank for International Settlements (BIS), the International Monetary Fund (IMF) and the following eligible Multilateral Development Banks (MDBs) evaluated by the Basel Committee on Banking Supervision (BCBS) shall be assigned a uniform zero percent (0%) risk weight: i) World Bank Group: IBRD and IFC, MIGA and IDA ii) Asian Development Bank, iii) African Development Bank, iv) European Bank for Reconstruction and Development, v) Inter-American Development Bank, vi) European Investment Bank, vii) European Investment Fund, viii) Nordic Investment Bank, ix) Caribbean Development Bank, x) Islamic Development Bank and xi) Council of Europe Development Bank. xii) International Finance Facility for Immunization (IFFIm) xiii) Asian Infrastructure Investment Bank (AIIB) 10.2 The BCBS shall continue to evaluate the eligibility of the above listed MDBs on a case-by-case basis. The list of eligible MDBs is given in paragraph 10.1 above. RBI shall update the list of eligible MDBs, as and when required. MDBs not covered in the list will be subject to treatment prescribed in paragraph 10.3 i.e., risk weights shall be assigned based on their rating. 10.3 Exposures to all other MDBs shall be risk weighted as per the rating assigned by the international rating agencies as under: Exposures under this section includes all exposures of banks to their counterparty banks, excluding exposures in equity, capital instruments and subordinated debt instruments which are covered in section 13 of these guidelines. Exposures to counterparty banks shall be risk weighted as per the following approaches: i) External Credit Risk Assessment Approach (ECRA): It applies to all exposures that are rated by external credit rating agency. ii) Standardised Credit Risk Assessment Approach (SCRA): It applies to exposures that are unrated. 11.1 External Credit Risk Assessment Approach (ECRA) 11.1.1 Banks shall assign to their rated bank exposures, the “base” risk weights based on the external ratings according to Table 4. Banks must apply Standardised Credit Risk Assessment Approach (SCRA) for their unrated bank exposures, in accordance with paragraph 11.2. 11.1.2 Banks must perform due diligence to ensure that the external ratings appropriately and conservatively reflect the creditworthiness of the counterparty banks. If due diligence analysis carried out by the bank reflects higher risk characteristics than that implied by the external rating bucket, then the bank may assign a risk weight at least one bucket higher than the “base” risk weight determined by the external rating. Due diligence analysis must never result in the application of a lower risk weight than that determined by the external rating.
11.1.3 Exposures to banks with an original maturity of three months or less, as well as exposures to banks that arise from the movement of goods across national borders with an original maturity of six months or less6, can be assigned a risk weight that correspond to the risk weights for short term exposures in Table 4. Other short term claims shall be risk weighted as given in Table 15. 11.2 Standardised Credit Risk Assessment Approach (SCRA) 11.2.1 Under SCRA, a bank is required to classify unrated exposures, other than those deducted from its capital, to banks incorporated in India or outside and the branches of foreign banks in India, into one of the three risk weight buckets viz., Grade A, Grade B and Grade C as per the following criteria: i) Grade A refers to exposures to counterparty bank, where the counterparty has adequate capacity to meet their financial commitments (including repayments of principal and interest) in a timely manner, for the projected life of the assets or exposures and irrespective of the economic cycles and business conditions. The counterparty banks classified under Grade A must meet the applicable minimum CET1, applicable capital conservation buffer (CCB) ratio and the minimum leverage ratio. If the minimum regulatory requirements satisfying the definitions of Grades under SCRA are not publicly disclosed or otherwise made available by the counterparty bank, then such claims to banks which were classified as Grade A shall attract the risk weight of Grade B or lower. ii) Grade B refers to exposures to counterparty bank, where the counterparty is subject to substantial credit risk, such as repayment capacities that are dependent on stable or favourable economic or business conditions. The counterparty banks classified under Grade B must meet the applicable minimum CET1 and minimum leverage ratio but may not meet the applicable CCB ratio. If the minimum regulatory requirements satisfying the definitions of Grades under SCRA are not publicly disclosed or otherwise made available by the counterparty bank, then such claims to banks which were classified as Grade B shall be classified as Grade C. iii) Grade C refers to higher credit risk exposures to counterparty bank, where the counterparty has material default risks and limited margins of safety. For these counterparties, adverse business, financial, or economic conditions are very likely to lead, or have led, to an inability to meet their financial commitments. The counterparty banks that do not meet the applicable minimum CET1 and/or minimum leverage ratio shall also be classified under Grade C. In addition, the counterparty bank shall be classified as Grade C if the external auditor has issued an adverse audit opinion or has expressed substantial doubt about the counterparty bank’s ability to continue as a going concern in its financial statements or audited reports within the previous 12 months. 11.2.2 The bucketing criteria for Regional Rural Banks, Local Area Banks and Co-operative Banks (UCBs and RCBs) shall be based on the level of CRAR, as CCB and leverage ratio are not applicable for such banks. If the minimum CRAR level is met, the bank shall be bucketed under Grade A, banks which have negative CRAR and/or adverse audit opinion shall be bucketed in Grade C and all other banks shall be bucketed in Grade B. 11.2.3 The bucketing criteria for AIFIs shall be based on level of CRAR, leverage ratio and audit opinion as CCB is not applicable for such entities. If the minimum CRAR level and leverage ratio are met and the AIFI does not have adverse audit opinion in relation to its financial statements, it shall be bucketed under Grade A, else under Grade C. 11.2.4 The risk weights for claims on unrated banks as per SCRA are as under:
Provided that if a counterparty bank classified as Grade ‘A' has a CET 1 ratio equal to or greater than 14 per cent and a Tier 1 leverage ratio which is equal to or greater than 5 per cent, then exposures to such banks shall attract a “base” risk weight of 30 per cent. 11.2.5 Exposures to banks with an original maturity of three months or less, as well as exposures to banks that arise from the movement of goods across national borders with an original maturity of six months or less8, can be assigned a risk weight that correspond to the risk weights for short term exposures in Table 5. 11.2.6 In the case of banks where no capital adequacy norms have been prescribed, the lending / investing bank may calculate the CRAR of the bank concerned, notionally, by obtaining necessary information from the investee bank, using the capital adequacy norms as applicable to the commercial banks. If it is not found feasible to compute CRAR on such notional basis, the risk weight of 350 per cent should be applied uniformly to the investing bank’s entire exposure, unless the exposure falls under speculative unlisted equity which shall attract risk weight of 400 per cent. 11.2.7 The exposures of the Indian branches of foreign banks, guaranteed / counter-guaranteed by the overseas Head Offices or the bank’s branch in another country, shall amount to a claim on the parent foreign bank, and shall also attract the risk weights as per Table 4 and Table 5. However, if bank reckons the exposure on the original counterparty instead of on its HO, then the exposure shall attract the risk weight of the counterparty as per Section 12 of these Guidelines. 11.2.8 To reflect transfer and convertibility risk under the SCRA, a risk-weight floor based on the risk weight applicable to exposures to the sovereign of the country where the bank counterparty is incorporated shall be applied to the risk weight assigned to bank exposures. The sovereign floor applies when the exposure is not in the local currency of the jurisdiction of incorporation of the debtor bank and for a borrowing booked in a branch of the debtor bank in a foreign jurisdiction, when the exposure is not in the local currency of the jurisdiction in which the branch operates. The sovereign floor shall not apply to short-term (i.e. with a maturity below one year) self-liquidating, trade-related contingent items that arise from the movement of goods.9 12.1 Scope: 12.1.1 Exposures to corporates10 include exposures (loans, bonds, receivables, etc.) to incorporated entities, associations, partnerships, Limited Liability Partnerships (LLPs), proprietorships, trusts, funds and other entities with similar characteristics, except those which qualify for one of the other exposure classes. Exposures to Subordinate debt, equity and other capital instruments of corporates are covered under section 13 of these guidelines. 12.1.2 The corporate exposure class includes exposures to securities firms, primary dealers, NBFCs, insurance companies and other financial institutions not covered under section 11. The corporate exposure class shall not include exposures to individuals and micro, small and medium enterprises (MSMEs) meeting the criteria prescribed under section 15. 12.2 The corporate exposure class differentiates between the following subcategories: i) General Corporate Exposures ii) Specialised Lending Exposures 12.3 General Corporate Exposures 12.3.1 Exposures to corporates shall be assigned risk weights as per the “base” risk weights in Tables 6-7 below, adjusted for the one-year probability of default for each rating category published by the respective ECRAs, as specified in Chapter IV of these guidelines, and the due diligence carried out by the banks. 12.3.2 If due diligence analysis carried out by the bank reflects higher risk characteristics than that implied by the external rating bucket, the bank may assign a risk weight at least one bucket higher than the risk weight determined by the external rating. Due diligence analysis must never result in the application of a risk weight lower than the applicable risk weight as per the external credit rating agencies.
Note:- i. No claim on an unrated corporate may be given a risk weight preferential to that assigned to its sovereign of incorporation. ii. Claims on corporates and NBFCs, except Core Investment Companies (CICs), having aggregate exposure from banking system of more than ₹100 crore rated earlier and which subsequently have become unrated11 will attract a risk weight of 150 per cent. iii. All unrated claims on corporates and NBFCs, except CICs, having aggregate exposure from banking system of more than ₹200 crore will attract a risk weight of 150 per cent. iv. CICs shall be risk weighted at 100 per cent. 12.3.3 Exposures to Corporates secured by real estate shall be risk weighted as prescribed for real estate exposure class in section 16. 12.4 Specialised Lending Exposures Corporate exposures which fall under the category of Specialised Lending (not related to real estate) will be classified in one of the three subcategories, viz., (i) Object finance; (ii) Commodities finance; and (iii) Project finance. 12.4.1 Specialised lending exposures, where issue-specific external ratings are available, shall be assigned risk weights according to paragraph 12.3. 12.4.2 Specialised lending exposures for which an issue-specific external rating is not available shall be risk weighted as per the Table below: Note:- i. Issuer ratings shall not be used in the case of specialised lending exposures. ii. Specialised lending exposures whose activity is related to real estate shall be treated like a real estate exposure class for the purpose of risk weights. 12.4.3 Project Finance: For the purpose of risk-weighting, projects shall be classified under: (i) Pre-operational phase, or (ii) Operational phase. During the operational phase, a project that is able to meet its financial commitments in a timely manner and its ability to do so is assessed to be robust against adverse changes in the economic cycle and business conditions will be classified as High Quality Projects. Such projects must also meet the following criteria, and shall attract a favourable risk weight of 80 per cent as per Table 8: i) The infrastructure project has completed at least one year of satisfactory operations post achievement of the date of completion of commercial operations; ii) The borrower entity is restricted from acting to the detriment of the creditors through suitable covenants, e.g., being restricted from issuing additional debt without the consent of existing creditors; iii) The borrower entity has sufficient reserve funds or other financial arrangements to cover the contingency funding and working capital requirements of the project; iv) The revenues are availability-based or subject to a rate-of-return regulation or take-or-pay contract. For instance, annuities under build-operate-transfer (BOT) model in respect of road/ highway projects and toll collection rights, where there are provisions to compensate the project sponsor if a certain level of traffic is not achieved, and banks' right to receive annuities and toll collection rights is legally enforceable and irrevocable; v) The borrower entity's revenue depends on one main counterparty and this main counterparty is a central government, PSE or a corporate entity with a risk weight of 80 per cent or lower; vi) The contractual provisions governing the exposure to the borrower entity provide for a high degree of protection for creditors in case of a default of the borrower entity, such as escrow of cash flows and legal first claim for the bank, in case of a default of the borrower entity; vii) The main counterparty or other counterparties which similarly comply with the eligibility criteria for the main counterparty will protect the creditors from the losses resulting from a termination of the project; viii) All assets and contracts necessary to operate the project have been charged in favor of the creditors to the extent permitted by applicable law; and ix) Creditors may assume control of the borrower entity in case of its default. Explanation: I. Availability-based revenues mean that once construction is completed, the project finance entity is entitled to payments from its contractual counterparties (eg the government), as long as contract conditions are fulfilled. II. Rate of return regulation is a form of price setting regulation where government or an authority determines the fair price allowed to be charged by a public utility. III. Take or pay contracts between a buyer and a seller of good and/or services mandate buyers to either accept the pre-determined quantity of goods/services at a pre-determined price or pay a penalty, ensuring risk-sharing between suppliers and buyers. 13 Exposures to Subordinated debt, equity and other capital instruments 13.1 Scope: Exposures for this section shall include subordinate debt, equity and other regulatory capital instrument issued by counterparty banks and corporates. Corporates for this purpose are as defined in section 12. Exposures shall exclude instruments deducted from the regulatory capital of the investing bank or investments which are required to be risk weighted at 250 per cent as per paragraph 4.4.9 of the ‘Master Circular – Basel III Capital Regulations’ dated April 1, 2025, as amended from time to time, and banks’ equity investment in funds as prescribed in section 18 of this circular. 13.2 The following risk weights shall be applicable for such exposures: 14.1 Claims (including both fund-based and non-fund based) that meet all the four criteria listed below in paragraph 14.2 shall be considered as retail claims for regulatory capital purposes and included in a regulatory retail portfolio. Claims included in this portfolio shall be assigned a risk weight of 75 per cent. 14.2 Qualifying Criteria for regulatory retail portfolio i) Orientation Criterion: The exposure (both fund based and non-fund based) is to an individual person or persons or to MSMEs. Person under this clause shall mean any legal person capable of entering into contracts and shall include but not be restricted to individual and HUF. However, in case the MSME is part of a group, the reported annual sales of the consolidated group of which the MSME is a part shall be less than or equal to ₹500 crores for the most recent financial year. ii) Product criterion: The exposure (both fund and non-fund based) takes the form of any of the following: revolving credits and lines of credit (including credit cards and overdrafts – which qualify as transactors), term loans and leases (e.g. instalment loans and leases), commitments and facilities for MSMEs and student and educational loans. iii) Low value of individual exposures: The maximum aggregated exposure to one counterparty cannot exceed an absolute threshold of ₹7.5 crore. iv) Granularity criterion: Banks must ensure that the regulatory retail portfolio is sufficiently diversified to a degree that reduces the risks in the portfolio, warranting the 75 per cent risk weight. No aggregated exposure to one counterparty can exceed 0.2 per cent12 of the overall regulatory retail portfolio. ‘Aggregated exposure’ means gross amount (i.e. not taking any benefit for credit risk mitigation into account) of all forms of retail exposures excluding residential real estate exposures. In addition, ‘one counterpart’ means one or several entities that may be considered as a single beneficiary (e.g. in the case of a MSME that is affiliated to another MSME, the limit shall apply to the bank's aggregated exposure on both businesses). While banks may appropriately use the group exposure concept for computing aggregated exposures, they should evolve adequate systems to ensure strict adherence with this criterion. NPAs under retail loans are to be excluded from the overall regulatory retail portfolio when assessing the granularity criterion for risk weighting purposes. 14.3 The following claims, both fund-based and non-fund-based, shall be excluded from the regulatory retail portfolio: i) Personal Loans (excluding education loans meeting regulatory retail criteria); ii) Credit card receivables other than those which qualify as transactors; iii) Capital Market Exposures; iv) Real Estate Exposures as per section 16 of these guidelines; v) Loans and Advances to bank’s own staff which are fully covered by superannuation benefits and / or mortgage of flat/ house. 14.4 For the purpose of ascertaining compliance with the absolute threshold, exposure shall mean sanctioned limit or the actual outstanding, whichever is higher, for all fund based and non-fund based facilities, including all forms of off-balance sheet exposures. In the case of term loans and EMI based facilities, where there is no scope for redrawing any portion of the repaid amount, exposure shall mean the actual outstanding. 14.5 The risk weight assigned to the retail portfolio would be evaluated with reference to the default experience for these exposures. As part of the supervisory review process, an assessment would be made on whether the credit quality of regulatory retail claims held by individual banks should warrant a standard risk weight higher than 75 per cent. 14.6 “Other retail” exposures not meeting the criteria of regulatory retail portfolio in paragraph 14.2 shall be risk-weighted as prescribed in section 19 under Specified Categories. 15 Exposure to Micro, Small and Medium Enterprises (MSMEs) 15.1 For the purpose of these guidelines, exposures to corporate that are classified as MSME shall be risk weighted as per paragraph 15.2. If the MSME is part of a group and if the reported annual sales for the consolidated group of which the MSME is a part, is greater than ₹500 crore for the most recent financial year then it shall attract the risk weight which is applicable on corporate exposures. 15.2 Risk weight for exposures to MSMEs shall be as follows: i) Rated exposures to MSMEs shall be risk weighted as per paragraph 12.3 of these guidelines. ii) Exposure to MSMEs that meet the criteria of regulatory retail portfolio given in paragraph 14.2 shall be risk weighted at 75 per cent. iii) Unrated MSME not meeting the regulatory retail criteria exposures shall be risk weighted at 85 per cent. iv) Exposures to MSMEs secured by real estate shall be risk weighted as prescribed in real estate asset class under section 16. 15.3 The Reserve Bank may increase the standard risk weight for unrated MSME claims where a higher risk weight is warranted by the overall default experience. As part of the supervisory review process, the Reserve Bank would also consider whether the credit quality of unrated MSME claims held by individual banks should warrant a standard risk weight higher than 85 per cent. 16.1 General Conditions: Real estate exposures of a bank shall be subject to the following general conditions: 16.1.1 Underwriting Policies: For exposures that qualify for real estate exposure asset class, banks shall put in place underwriting policies with respect to the granting of mortgage loans that include the assessment of the ability of the borrower to repay. Underwriting policies must define metric(s) (such as the loan’s debt service coverage ratio, debt service-to-income ratio) and specify its (their) corresponding relevant level(s) to conduct such assessment. Underwriting policies must also be appropriate when the repayment of the mortgage loan depends materially on the cash flows generated by the property, including relevant metrics (such as an occupancy rate of the property and likely income). 16.1.2 LTV ratio: LTV ratio shall be computed as a percentage of ‘total loan outstanding’ in the numerator and the ‘realisable value’ of the residential property mortgaged to the bank in the denominator. For this purpose, the ‘total loan outstanding’ shall include the funded outstanding and any undrawn committed amount in the account (viz. “principal + accrued interest + other charges pertaining to the loan”) gross of any provisions and other risk mitigants, except for pledged deposit accounts with the lending bank that meet all requirements for on-balance sheet netting and have been unconditionally and irrevocably lien-marked for the sole purposes of redemption of the mortgage loan. 16.1.3 For computing loan to value (LTV) ratio, the value of the property shall be reckoned at the value measured at origination unless the value of the property has been revised downwards (as per the bank’s policy on periodic valuation of the property). These downward valuations need to be considered for LTV computation. If the value has been adjusted downwards, a subsequent upwards adjustment can be made but not to a higher value than the value at origination. The value of the property should be adjusted if an extraordinary event occurs resulting in permanent reduction of the property value. Modifications made to the property that unequivocally increase its value could also be considered in the LTV. Moreover, the value of the property must not depend materially on the performance of the borrower. 16.1.4 Value of the property: Banks shall put in place a policy for valuation of properties accepted as security for their exposures. The valuation shall be appraised independently13 using prudently conservative valuation criteria. To ensure that the value of the property is appraised in a prudently conservative manner, the valuation must exclude expectations on price increases and must be adjusted to take into account the potential for the current market price to be significantly above the value that shall be sustainable over the life of the loan. Valuations shall be made as specified in circular ‘Valuation of Properties - Empanelment of Valuers’ dated January 04, 2007 or any relevant regulation issued after that, taking into account inter alia the valuation standards notified by Central Government14. If a market value can be determined, the valuation should not be higher than the market value15. 16.1.5 The bank is expected to monitor the value of the collateral at least once in three years as per its policy. More frequent monitoring is suggested where the market is subject to significant changes in conditions. Statistical methods of evaluation may be used to update estimates or to identify collateral that may have declined in value and that may need re-appraisal. A qualified professional valuer must evaluate the property when information indicates that the value of the collateral may have declined materially relative to general market prices or when a credit event, such as default, occurs. 16.1.6 Application of credit risk mitigation: A guarantee or financial collateral may be recognised as a credit risk mitigant in relation to exposures secured by real estate if it qualifies as eligible collateral under the credit risk mitigation framework as detailed in Chapter V of these guidelines. This may include mortgage insurance16 if it meets the operational requirements of the credit risk mitigation framework for a guarantee. Banks may recognise these risk mitigants in calculating the exposure amount; however, the LTV bucket and risk weight to be applied to the exposure amount must be determined before the application of the appropriate credit risk mitigation technique. Categories of Real Estate Exposures 16.2 The real estate exposure asset class shall consist of: i) Housing Loans to Individuals ii) Commercial Real Estate – Acquisition, Development and Construction Exposures - CRE(ADC) iii) Other Claims secured by Real Estate Housing Loans to Individuals 16.3 Housing loans to individuals shall be for construction or acquisition of housing units and shall consist of the following exposures: a) loans to individuals for purchase of land for construction of residential property; b) loans to individuals secured by under-construction residential property on their existing plot of land; c) loans to the individual members of registered associations or co-operative housing societies for construction of residential houses for the members as per the bye-laws of the society under the relevant Act; d) loans to individuals for purchase of under-construction dwelling units in: (i) projects registered with a relevant Real Estate Regulatory Authority (RERA) under the Real Estate (Regulation and Development) Act 2016, or (ii) other projects where registration with a RERA is not mandatory under the Act. e) loans to individuals for acquisition of ready-built dwelling units. Provided that in above cases (a) to (c), the construction shall start within a year and shall finish in maximum five years from the date of first disbursement as per the loan agreement with the bank, and bye-laws of the Society. In case of (d), the construction shall be completed as per the terms and conditions of registration granted by the RERA. In all the above cases, the property shall satisfy all the applicable laws and regulations enabling the property to be occupied for housing purposes upon completion. 16.3.1 Real estate exposure shall also meet the following criteria: i) Legal enforceability: Bank’s claim on the mortgaged property must be legally enforceable. The loan agreement and the legal process underpinning it must be such that they provide for the bank to realise the value of the property within a reasonable time frame. ii) Claims over the property: A single bank has an absolute claim or multiple banks have pari-passu claims over the property, subject to the condition that: (a) there is an inter-creditor agreement among the banks, (b) each bank’s loan should be fully secured by the current value of the property for being eligible for regulatory real estate exposures. iii) Ability of the borrower to repay: Repayment capacity of the borrower shall invariably be assessed irrespective of the value of the property and the borrower must meet the requirements set according to paragraph 16.1.1. iv) Prudent value of property: the property must be valued according to the criteria in paragraphs 16.1.2 and 16.1.4 for determining the value in the loan-to-value ratio (LTV). Moreover, the valuation of the property must not depend on the credit worthiness of the borrower. v) Required documentation: all the information required at loan origination and for monitoring purposes must be properly documented, including information on the ability of the borrower to repay and on the valuation of the property. 16.3.2 Risk weights i) Housing loans to individuals for up to two housing loans (shall include all existing as well as fresh loans), which shall be treated as their primary residences, shall attract the following risk weights as per the ceilings of LTV ratio prescribed:
ii) Risk weights on the third housing loan onward to individuals (excluding fully repaid loans) shall be as per the ceilings of LTV ratios given in the following Table:
iii) In both the above cases, an additional five percentage points of risk weight would be applicable if loan amount is of ₹ 3 crore or above. Commercial Real Estate Exposures – Acquisition, Development and Construction – CRE (ADC) 16.4 Loans to commercial entities (including proprietorship firms and HUFs) for acquisition (wherever permitted) and development of land, and/or construction of commercial or residential real estate projects where the repayment is dependent on the underlying property such as renting, leasing the units or; selling the units of the project; selling the complete, or part of, the project, etc. shall be classified as CRE(ADC) exposures. 16.4.1 Such loans for construction of residential complexes or integrated projects (residential plus commercial) having at least 90 per cent Floor Space Index for residential real estate, and which meet the following criteria, shall be sub-classified as CRE-RH (ADC) (Commercial Real Estate – Residential Housing (ADC)): i) All conditions stipulated in paragraph 16.3.1 ii) Project should be registered with the relevant RERA, wherever the registration is mandatory under the Real Estate (Regulation and Development) Act. iii) The borrower has invested at least 33 per cent of the total cost of the finished project as equity; or, 16.4.2 Risk Weights: The following RWs shall be applicable on CRE(ADC) exposures:
Other Claims secured by Real Estate 16.5 All other loans not categories as either housing loans to individuals or CRE-ADC shall be classified under this category, including loans to commercial entities (including proprietorship firms and HUFs) against the security of existing real estate assets or for acquisition of real estate properties for business and other permissible purposes; loans against semi-finished or unfinished properties; and personal loans to individuals against their existing properties. Further, exposures classified under Capital Market Exposure but secured by existing real estate assets shall attract a risk weight treatment provided under paragraph 19.3. 16.5.1 Apart from qualifying for General Conditions for real estate exposures, such loans shall also be underwritten for the purposes for which they are granted. 16.5.2 Risk weights: The following RWs shall be applicable on such loans: (i) Loans against and for acquisition of finished residential properties which qualify the conditions given in paragraph 16.3.1, and where the repayment is envisaged from the cash flow generated from the economic activity for which loan is taken, shall qualify for the following RWs:
(ii) Loans against and for acquisition of finished residential properties which qualify the conditions given in paragraph 16.3.1, and where the repayment is primarily17 envisaged from the rent/lease/prospective sale of the underlying property and not from cash flow generated from the economic activity for which the loan is taken, shall qualify for the following RWs:
(iii) Loans against and for finished commercial properties which qualify the conditions given in paragraph 16.3.1, and where the repayment is envisaged from the cash flow generated from the economic activity for which the loan is taken, shall qualify for the following RWs:
(iv) Loans against and for finished commercial properties which qualify the conditions given in paragraph 16.3.1, and where the repayment is primarily18 envisaged from the rent/lease/prospective sale of the underlying property and not from the cash flow generated from the economic activity for which the loan is taken, shall qualify for the following RWs:
(v) Loans against semi-finished/unfinished residential or commercial properties, plots of land, and/or which do not qualify all the conditions given in paragraph 16.3.1, and where the repayment is envisaged from the cash flow generated from the economic activity for which loan is taken, shall qualify for the following RWs:
(vi) Loans against semi-finished residential or commercial properties, plots of land, and/or properties which do not qualify all the conditions given in paragraph 16.3.1, and where the repayment is primarily19 envisaged from the rent/lease/prospective sale of the underlying property and not from cash flow generated from the economic activity for which the loan is taken, shall qualify for the following RWs:
(vii) The above categories will also include personal loans to individuals against their existing properties. In cases of personal loans where repayment is not envisaged from the rent/lease/prospective sale of the underlying property but from other sources, shall attract the RWs as per Table 10.4, Table 10.6 and Table 10.8 as the case may be. In cases where repayment of such personal loans would depend on rent/lease/prospective sale of the underlying property, RWs would be as per Table 10.5, Table 10.7 and Table 10.9 as the case may be. (viii) Loans for construction on existing land for business purposes, where the repayment arises from cash flows of the business, shall attract risk weights as per Table 10.8. 16.6 Investments in mortgage backed securities (MBS) backed by exposures secured by residential property or commercial real estate shall be governed by ‘Master Direction– Reserve Bank of India (Securitisation of Standard Assets) Directions, 2021’ dated September 24, 2021. 17 Non-Performing Assets (NPAs) 17.1 The unsecured portion of NPA (other than qualifying residential real estate exposure which is addressed in paragraph 17.4), net of specific provisions (including partial write-offs), shall be risk-weighted as follows: i) 150 per cent risk weight when specific provisions are less than 20 per cent of the outstanding amount of the NPA ii) 100 per cent risk weight when specific provisions are at least 20 per cent of the outstanding amount of the NPA iii) 50 per cent risk weight when specific provisions are at least 50 per cent of the outstanding amount of the NPA 17.2 For the purpose of computing the level of specific provisions in NPAs for deciding the risk-weighting, all funded NPA exposures of a single counterparty (without netting the value of the eligible collateral) should be reckoned in the denominator. 17.3 For the purpose of defining the secured portion of the NPA, eligible collateral shall be the same as recognised for credit risk mitigation purposes (paragraph 36.6). Hence, other forms of collateral like land, buildings, plant, machinery, current assets, etc. shall not be reckoned while computing the secured portion of NPAs for calculating risk weighted assets. 17.4 Residential real estate exposures where repayments do not materially depend on cash flows generated by the property securing the loan which are NPA shall be risk weighted at 100 per cent net of specific provisions and partial write-offs. 18 Equity Investments in Funds 18.1 This section prescribes computation of risk weighted assets (RWAs) for a bank’s investments in pooled funds such as Alternative Equity Fund (AIF), Hedge Fund, Fund of Funds, Real Estate Investment Trusts (REITs), Infrastructure Investment Trusts (InvITs), etc., where such investments are allowed to be held in the banking book of the investing bank. RWAs for such exposures shall be computed under one or more of the following three approaches, which vary in their risk sensitivity and conservatism: the "look-through approach" (LTA), the "mandate-based approach" (MBA), and the "fall-back approach" (FBA). The requirements set out in this section shall also apply to banks' off-balance sheet exposures (e.g., unfunded commitments to subscribe to a fund's future capital calls) in such funds. However, such exposures of banks, including underlying exposures held by the investee funds, that are required to be deducted from capital of investing banks are excluded from provisions contained in paragraphs 18.2 to 18.7. 18.2 The look-through approach (LTA) 18.2.1 This is the most granular and risk-sensitive approach. It requires a bank to identify the underlying exposures of the investee fund and risk weight those exposures by notionally treating them in its own books. This approach must be used when the following conditions are met: i) The investee fund is registered with and regulated by a financial sector regulator. ii) The investee fund makes adequate and frequent disclosures about its underlying exposures; and iii) Such disclosures are verified by an independent third party. 18.2.2 To satisfy condition (ii) above, the investee fund must report its financials and make necessary disclosures about its underlying assets at equal or higher periodicity than the investing bank, and such disclosures must be granular enough to enable the investing bank to identify each distinct underlying exposure and calculate the corresponding risk weights. To satisfy condition (iii) above, there must be verification and certification of the underlying exposures by an independent third party, such as the depository or the custodian bank or an external auditor. 18.2.3 Under the LTA, investing banks must risk weight all underlying exposures of the investee fund as if those exposures were directly held by it in its own books. This prescription shall be applicable, inter alia, on any underlying exposure of the investee fund, such as its derivative activities, which require risk weighting treatment for the underlying asset of the derivative under minimum risk-based capital requirements as well as the associated counterparty credit risk (CCR) exposure. In such cases, instead of determining a credit valuation adjustment (CVA) charge associated with the fund’s derivatives exposures in accordance with the CVA framework (as per paragraph 5.15.3 of ‘Master Circular – Basel III Capital Regulations’ dated April 1, 2025, as amended from time to time), banks shall multiply the CCR exposure by a factor of 1.5 before applying the risk weight associated with the counterparty20. 18.2.4 Banks may rely on third-party calculations for determining the risk weights associated with their equity investments in funds (ie. the underlying risk weights of the exposures of the fund) if they do not have adequate data or information to perform the calculations themselves. In such cases, the applicable risk weight shall be 1.2 times higher than the one that would be applicable if the exposure were held directly by the bank21. 18.3 The mandate-based approach (MBA) 18.3.1 The second approach, the MBA, provides a method for calculating regulatory capital that can be used when the conditions (ii) and (iii) of paragraph 18.2.1 for applying the LTA are not met. 18.3.2 Under the MBA, investing banks may use the information contained in a investee fund's mandate or in the regulations issued by the concerned financial sector regulator governing such investment funds.22 To ensure that all underlying risks are taken into account (including CCR) and that the MBA renders capital requirements no less than the LTA, the risk-weighted assets for the fund's exposures are calculated as the sum of the following three items: i) Balance sheet exposures (ie the funds' assets) shall be risk weighted assuming the underlying portfolios are invested to the maximum extent allowed under the fund's mandate in those assets attracting the highest capital requirements, and then progressively in those other assets implying lower capital requirements. If more than one risk weight can be applied to a given exposure, the maximum risk weight applicable must be used23. ii) Whenever the underlying risk of a derivative exposure or an off-balance-sheet item receives a risk weighting treatment under the risk based capital requirements standard, the notional amount of the derivative position or of the off-balance sheet exposure is risk weighted accordingly.24 25 iii) In cases of funds having derivative exposures as underlying, MBA can be used by banks in India only when the standardised approach to counterparty credit risk (SA-CCR) becomes applicable. iv) The CCR associated with the fund's derivative exposures is calculated using the standardised approach to counterparty credit risk (SA-CCR). SA-CCR calculates the counterparty credit risk exposure of a netting set of derivatives by multiplying (i) the sum of the replacement cost and potential future exposure; by (ii) an alpha factor set at 1.4. Whenever the replacement cost is unknown, the exposure measure for CCR shall be calculated in a conservative manner by using the sum of the notional amounts of the derivatives in the netting set as a proxy for the replacement cost, and the multiplier used in the calculation of the potential future exposure shall be equal to 1. Whenever potential future exposure is unknown, it shall be calculated as 15 per cent of the sum of the notional values of the derivatives in the netting set.26 The risk weight associated with the counterparty is applied to the counterparty credit risk exposure. Instead of determining a CVA charge associated with the fund's derivative exposures in accordance with the CVA framework (as per paragraph 5.15.3 of ‘Master Circular – Basel III Capital Regulations’ dated April 1, 2025, as amended from time to time), banks must multiply the CCR exposure by a factor of 1.5 before applying the risk weight associated with the counterparty.27 See Appendix 2 for an example of how to calculate risk-weighted assets using the MBA. 18.4 The fall-back approach (FBA) Where neither the LTA nor the MBA is feasible, banks shall apply the FBA. Under FBA the bank’s equity investment in the investee fund shall be subject to full capital deduction from CET1 capital. 18.5 Equity exposure to funds that invest in other funds (Fund of Funds) When a bank has equity exposure to Fund of Funds (FoF), then it shall first identify the underlying exposures of its own investee fund to different other funds, either using the LTA or the MBA. In the second step, it can determine the risk weights for the investee fund’s exposures by using any of the three approaches prescribed above. However, if the investee fund’s investee(s) have further investments in other funds, i.e., the investee fund has also invested in a FoF, then it shall apply only the LTA for determining the risk weighted assets. If the necessary conditions for applying LTA are not met, then the bank must apply FBA. 18.6 Computation of RWA for Equity Exposures in Fund 18.6.1 For determining the capital requirement for its equity exposures in funds under the LTA and MBA, a bank shall apply a leverage adjustment to the average risk weight of the fund (Avg RWfund). In this context, Leverage (Lvg) is defined as the ratio of total assets of the investee fund to its total equity, and Avg RWfund is obtained by dividing the total risk-weighted assets of the fund as calculated under either LTA or MBA by the total assets of the fund. In cases where the bank uses MBA, Leverage shall be the maximum financial leverage permitted in the fund’s mandate or in the SEBI regulations or regulations of the relevant financial sector regulator governing the fund. 18.6.2 The leverage adjustment, i.e., the product of Lvg and Avg RWfund, is subject to a cap of risk weight equivalent to full capital deduction. 18.6.3 Using Avg RWfund and taking into account the leverage of a fund (Lvg), the risk-weighted assets for a bank’s equity investment in a fund can be represented as follows: RWAinvestment = Avg RWfund * Lvg * equity investment of the bank in the investee fund 18.7 Partial use of an approach A bank may use a combination of the three approaches when determining the capital requirements for an equity investment in an individual fund, provided that the conditions set out in paragraphs 18.1 to 18.6 are met. 19.1 Personal loans (excluding education loans meeting the regulatory retail criteria and transactor credit card receivables, housing loans, vehicle loans, microfinance loans), shall attract a risk weight of 125 per cent. Credit card receivables other than those which qualify as transactors under regulatory retail portfolio asset class shall attract a risk weight of 125 per cent. All other consumer credit exposure shall attract a risk weight of 100 per cent, unless specified otherwise. Microfinance loans that are in the nature of consumer credit and are not eligible for classification under ‘regulatory retail’ shall attract a risk weight of 100 per cent. 19.2 As gold and gold jewellery are eligible financial collateral, the exposure in respect of personal loans secured by gold and gold jewellery shall be worked out under the comprehensive approach as per chapter V. The ‘exposure value after risk mitigation’ shall attract the risk weight of 125 per cent. 19.3 Advances classified as ‘Capital market exposures’ other than direct equity exposures as specified under section 13 above, shall attract a 125 per cent risk weight or risk weight warranted by external rating (or lack of it) of the counterparty, whichever is higher. 20 Unhedged Foreign Currency Exposure 20.1 Unhedged foreign currency exposures of entities28 shall attract incremental capital requirements for bank exposures to entities with unhedged foreign currency exposures (i.e. over and above the present capital requirements) as per the instructions contained in ‘Reserve Bank of India (Unhedged Foreign Currency Exposure) Directions, 2022’, as under:
20.2 For unhedged ‘retail and residential real estate exposures’ to individuals where the lending currency differs from the currency of the borrower’s source of income, banks shall apply a 1.5 times multiplier to the applicable risk weight, subject to a maximum risk weight of 150 per cent. Natural31 and financial hedges32 are considered sufficient only if they cover at least 90 per cent of the loan instalment. 21.1 Loans and advances to bank’s own staff which are fully covered by superannuation benefits and/or mortgage of flat/ house shall attract a 20 per cent risk weight. Since flat / house is not an eligible collateral and since banks normally recover the dues by adjusting the superannuation benefits only at the time of cessation from service, the concessional risk weight shall be applied without any adjustment of the outstanding amount. In case a bank is holding eligible collateral in respect of amounts due from a staff member, the outstanding amount in respect of that staff member may be adjusted to the extent permissible under CRM mechanism. 21.2 Other loans and advances to bank’s own staff shall be eligible for inclusion under regulatory retail portfolio and shall therefore attract a 75 per cent risk weight. 21.3 A 20 per cent risk weight shall apply to cash items in the process of collection. 21.4 A zero per cent risk weight shall apply to i) Cash owned and held at the bank or in transit; and ii) Gold bullion, held if any, at the bank or held in another bank on an allocated basis, to the extent the gold bullion assets are backed by the gold bullion liabilities. 21.5 All other assets shall attract a uniform risk weight of 100 per cent. 22.1 General i) The risk-weighted amount of an off-balance sheet item that gives rise to credit exposure is generally calculated by means of a two-step process:
ii) Where the off-balance sheet item is secured by eligible collateral or guarantee, the credit risk mitigation (CRM) as detailed in chapter V may be applied. iii) Where the non-market related off-balance sheet item is an undrawn or partially undrawn fund-based facility33, the amount of undrawn commitment to be included in calculating the off-balance sheet non-market related credit exposures is the maximum unused portion of the commitment that could be drawn during the remaining period to maturity. Any drawn portion of a commitment forms a part of bank's on-balance sheet credit exposure. iv) Irrevocable commitments to provide off-balance sheet facilities should be assigned the lower of the CCFs as applicable on either the irrevocable commitment or the off-balance sheet facility as stipulated in Table 12 below. For example, an irrevocable commitment with an original maturity of 15 months (40 per cent - CCF) to issue a six month documentary letter of credit (20 per cent - CCF) shall attract the lower of the CCF i.e., the CCF applicable to the documentary letter of credit viz. 20 per cent. 22.2 The credit conversion factors for non-market related off-balance sheet transactions are as under:
Note: i) The risk-weighting treatment for counterparty credit risk must be applied in addition to the credit risk charge on the securities or posted collateral (sl. no. 4 in Table 12). This provision does not apply to posted collateral related to derivative transactions that is treated in accordance with the counterparty credit risk standards. ii) CCF at sl. no. 10 in Table 12 above shall be staggered in two stages, as follows:
22.3 In cases of non-market related off-balance sheet items, the following transactions with non-bank counterparties shall be treated as claims on banks: i) Guarantees issued by banks against the counter guarantees of other banks. ii) Rediscounting of documentary bills discounted by other banks and bills discounted by banks which have been accepted by another bank shall be treated as a funded claim on a bank. 22.4 In all the above cases banks should be fully satisfied that the risk exposure is in fact on the other bank. If they are satisfied that the exposure is on the other bank they may assign these exposures the risk weight applicable to banks as detailed in section 11. It is clarified that any CRM instrument issued by a bank (e.g. SBLC/BG from Head Office/other overseas branch) from which CRM benefits like shifting of exposure/ risk weights etc are not derived, may not be counted as an exposure on the CRM provider. In such cases, risk weight of the counterparty shall apply. 22.5 Issue of Irrevocable Payment Commitment by banks to various Stock Exchanges on behalf of Mutual Funds and FPIs is a financial guarantee with a Credit Conversion Factor (CCF) of 100 per cent. However, under T+237 settlement cycle (T being the trade day), capital shall have to be maintained only on exposure which is reckoned as capital market exposure (CME), i.e. 50 per cent of the settlement amount because the rest of the exposure is deemed to have been covered by cash/securities which are admissible risk mitigants as per capital adequacy framework. Thus, capital is to be maintained on the amount taken for CME and the risk weight shall be 125 per cent thereon. 22.6 For classification of bank guarantees viz. direct credit substitutes and transaction-related contingent items etc. (sl. no. 1 and 7 of Table 12 above), the following principles should be kept in view for the application of CCFs: i) Financial guarantees are direct credit substitutes wherein a bank irrevocably undertakes to guarantee the repayment of a contractual financial obligation. Financial guarantees essentially carry the same credit risk as a direct extension of credit i.e., the risk of loss is directly linked to the creditworthiness of the counterparty against whom a potential claim is acquired. An indicative list of financial guarantees, attracting a CCF of 100 per cent is as under:
ii) Performance guarantees are essentially transaction-related contingencies that involve an irrevocable undertaking to pay a third party in the event the counterparty fails to fulfil or perform a contractual non-financial obligation. In such transactions, the risk of loss depends on the event which need not necessarily be related to the creditworthiness of the counterparty involved. An indicative list of performance guarantees, attracting a CCF of 50 per cent is as under:
23 Capital Adequacy Requirement for Securitisation Exposures 23.1 The treatment of securitisation exposures for capital adequacy has been specified in the ‘Master Direction– Reserve Bank of India (Securitisation of Standard Assets) Directions, 2021’ dated September 24, 2021. As specified under clause 4 of Master Direction ibid, these directions, including those under Chapter VI ibid, will be applicable to securitisation transactions undertaken subsequent to the issue of these directions. 23.2 For transactions undertaken before issuance of the afore mentioned directions, i.e., prior to September 24, 2021, the treatment of securitisation exposures for capital adequacy would be as per the guidelines issued vide circular ‘Guidelines on Securitisation of Standard Assets’ dated February 1, 2006, as amended from time to time, and as consolidated in paragraph 5.16 of ‘Master Circular – Basel III Capital Regulations’ dated July 1, 2015. CHAPTER IV – EXTERNAL CREDIT ASSESSMENTS 24 Eligible Credit Rating Agencies (ECRA) 24.1 Reserve Bank undertakes annual accreditation for identifying the eligible credit rating agencies, whose ratings shall be used by banks for assigning risk weights for credit risk. Wherever the facility provided by the bank possesses rating assigned by an eligible credit rating agency, the risk weight of the claim shall be based on this rating. 24.2 Banks are permitted to use the ratings of the following domestic credit rating agencies (arranged in alphabetical order), subject to periodic review by the Reserve Bank, for the purposes of risk weighting their claims for capital adequacy purposes: i) Acuité Ratings and Research Limited (Acuite) ii) Brickwork Ratings India Private Limited38 iii) CARE Ratings Limited; iv) CRISIL Ratings Limited; v) ICRA Limited; vi) India Ratings and Research Private Limited (India Ratings); and vii) INFOMERICS Valuation and Rating Pvt Ltd. (INFOMERICS) 24.3 The banks shall use the ratings of the following international credit rating agencies (arranged in alphabetical order) for the purposes of risk weighting their claims on non-resident entities for capital adequacy purposes: i) Fitch; ii) Moody's; and iii) Standard & Poor’s iv) CareEdge Global IFSC Limited (for risk weighting their claims on non-resident corporates originating at International Financial Services Centre (IFSC)) 25 Scope of Application of External Ratings 25.1 Banks should use the chosen credit rating agencies and their ratings consistently for each type of claim, for both risk weighting and risk management purposes. Banks will not be allowed to “cherry pick” the assessments provided by different credit rating agencies and to arbitrarily change the use of credit rating agencies. If a bank has decided to use the ratings of some of the chosen credit rating agencies for a given type of claim, it can use only the ratings of those credit rating agencies, despite the fact that some of these claims may be rated by other chosen credit rating agencies whose ratings the bank has decided not to use. Banks shall not use one agency’s rating for one corporate bond, while using another agency’s rating for another exposure to the same counterparty, unless the respective exposures are rated by only one of the chosen credit rating agencies, whose ratings the bank has decided to use. 25.2 Banks must disclose the names of the credit rating agencies that they use for the risk weighting of their assets, the risk weights associated with the particular rating grades as determined by Reserve Bank through the mapping process for each eligible credit rating agency as well as the aggregated risk weighted assets as required vide Table DF-4 of Annex 17 of ‘Master Circular – Basel III Capital Regulations’ dated April 01, 2025, as updated from time to time. 25.3 To be eligible for risk-weighting purposes, the external credit assessment must take into account and reflect the entire amount of credit risk exposure the bank has with regard to all payments owed to it. For example, if a bank is owed both principal and interest, the assessment must fully take into account and reflect the credit risk associated with timely repayment of both principal and interest. 25.4 To be eligible for risk weighting purposes, the rating should be in force and confirmed from the monthly bulletin of the concerned rating agency. The rating agency should have reviewed the rating at least once during the previous 15 months. 25.5 An eligible credit assessment must be publicly available. In other words, a rating must be published in an accessible form and included in the external credit rating agency’s transition matrix. Consequently, ratings that are made available only to the parties to a transaction do not satisfy this requirement. 25.6 For assets in the bank’s portfolio that have contractual maturity of less than or equal to one year, short term ratings accorded by the chosen credit rating agencies would be relevant. For other assets which have a contractual maturity of more than one year, long term ratings accorded by the chosen credit rating agencies would be relevant. 25.7 Cash credit exposures tend to be generally rolled over and also tend to be drawn on an average for a major portion of the sanctioned limits. Hence, even though a cash credit exposure may be sanctioned for a period of one year or less, these exposures should be reckoned as long term exposures and accordingly the long term ratings accorded by the chosen credit rating agencies will be relevant. Similarly, banks may use long-term ratings of a counterparty as a proxy for an unrated short- term exposure on the same counterparty subject to strict compliance with the requirements for use of multiple rating assessments and applicability of issue rating to issuer / other claims as indicated in sections 27 to 31 below. 25.8 External ratings for one entity within a corporate group cannot be used to risk-weight other entities within the same group. Basel III Framework recommends development of a mapping process to assign the ratings issued by eligible credit rating agencies to the risk weights available under the Standardised risk weighting framework. The mapping process is required to result in a risk weight assignment consistent with that of the level of credit risk. A mapping of the credit ratings awarded by the chosen domestic credit rating agencies has been furnished below in sections 27 and 28, which should be used by banks in assigning risk weights to the various exposures. Banks must assign differential risk weights to specific rating categories of any ECRA based on the Probability of Default (PD) criterion given in paragraph 27.4 below. 27.1 On the basis of the above factors as well as the data made available by the rating agencies, the ratings issued by the chosen domestic credit rating agencies have been mapped to the appropriate risk weights applicable as per the Standardised approach under the Revised Framework. The rating-risk weight mapping furnished in the Table below shall be adopted by all banks in India.
27.2 Where “+” or “-” notation is attached to the rating, the corresponding main rating category risk weight should be used. For example, A+ or A- shall be considered to be in the A rating category and assigned 50 per cent risk weight 27.3 If an issuer has a long-term exposure with an external long term rating that warrants a risk weight of 150 per cent, all unrated claims on the same counter-party, whether short-term or long-term, should also receive a 150 per cent risk weight, unless the bank uses recognised credit risk mitigation techniques for such claims. 27.4 Domestic CRAs shall publish a one-year PD for each rating category. If the reported PD by the CRA for a rating category is within or below the range specified in Table 14 below, the rating category may be assigned the Base RW provided in Table 13. However, if the reported PD for a rating category is above the range in Table 14, a RW of one bucket higher than the Base RW must be applied.
28.1 For risk-weighting purposes, short-term ratings are deemed to be issue- specific. They can only be used to derive risk weights for exposures arising from the rated facility. They cannot be generalised to other short-term exposures, except under the conditions prescribed in paragraph 28.5. In no event can a short-term rating be used to support a risk weight for an unrated long-term claim. Short-term assessments may only be used for short-term claims against banks and corporates. 28.2 Notwithstanding the above restriction on using an issue specific short term rating for other short term exposures, the following broad principles shall apply: 28.2.1 If a short-term rated facility to counterparty attracts a 20 per cent or a 50 per cent risk-weight, unrated short-term claims to the same counter-party cannot attract a risk weight lower than 30 per cent or 100 per cent respectively. 28.2.2 Similarly, if an issuer has a short-term exposure with an external short term rating that warrants a risk weight of 150 per cent, all unrated claims on the same counter-party, whether long-term or short-term, should also receive a 150 per cent risk weight, unless the bank uses recognised credit risk mitigation techniques for such claims. 28.3 In respect of the issue specific short term ratings the following risk weight mapping shall be adopted by banks:
28.4 Where “+” or “-” notation is attached to the rating, the corresponding main rating category risk weight should be used for A2 and below, unless specified otherwise. For example, A2+ or A2- shall be considered to be in the A2 rating category and assigned 50 per cent risk weight 28.5 In cases where short-term ratings are available, the following interaction with the general preferential treatment for short-term exposures to banks as described in paragraph 11.1.3 shall apply: i) The general preferential treatment for short-term exposures applies to all exposures to banks of up to three months original maturity when there is no specific short-term claim assessment. ii) When there is a short-term rating and such a rating maps into a risk weight that is more favourable (ie lower) or identical to that derived from the general preferential treatment, the short-term rating should be used for the specific exposure only. Other short-term exposures shall benefit from the general preferential treatment. iii) When a specific short-term rating for a short term exposure to a bank maps into a less favourable (higher) risk weight, the general short-term preferential treatment for interbank exposures cannot be used. All unrated short-term exposures should receive the same risk weighting as that implied by the specific short-term rating. 28.6 The above risk weight mapping of both long term and short term ratings of the chosen domestic rating agencies shall be reviewed annually by the Reserve Bank. A rating would be treated as solicited only if the issuer of the instrument has requested the credit rating agency for the rating and has accepted the rating assigned by the agency. As a general rule, banks should use only solicited rating from the chosen credit rating agencies. No ratings issued by the credit rating agencies on an unsolicited basis should be considered for risk weight calculation as per the Standardised Approach. 30 Use of Multiple Rating Assessments Banks shall be guided by the following in respect of exposures / obligors having multiple ratings from the credit rating agencies chosen by the bank for the purpose of risk weight calculation: i) If there is only one rating by a chosen credit rating agency for a particular claim, that rating would be used to determine the risk weight of the claim. ii) If there are two ratings accorded by chosen credit rating agencies that map into different risk weights, the higher risk weight should be applied. iii) If there are three or more ratings accorded by chosen credit rating agencies with different risk weights, the ratings corresponding to the two lowest risk weights should be referred to and the higher of those two risk weights should be applied. i.e., the second lowest risk weight. 31 Applicability of ‘Issue Rating’ to issuer/ other claims 31.1 Where a bank invests in a particular issue that has an issue specific rating by a chosen credit rating agency the risk weight of the exposure shall be based on this assessment. Where the bank’s exposure is not an investment in a specific rated issue, the following general principles shall apply subject to instructions contained in circular ‘Review of Prudential Norms – Risk Weights for Exposures to Corporates and NBFCs’ dated October 10, 2022: i) In circumstances where the borrower has a specific rating for an issued debt - but the bank’s exposure is not an investment in this particular debt - the rating applicable to the specific debt (where the rating maps into a risk weight lower than that which applies to an unrated claim) may be applied to the bank’s unassessed claim only if this claim ranks pari passu or senior to the specific rated claim in all respects and the maturity of the unassessed claim is not later than the maturity of the rated claim43, except where the rated claim is a short term obligation as specified in paragraph 28.2. If not, the rating applicable to the specific debt cannot be used and the unassessed claim shall receive the risk weight for unrated claims. ii) In circumstances where the borrower has an issuer rating, this rating typically applies to senior unsecured claims on that issuer. Consequently, only senior claims on that issuer shall benefit from a high-quality issuer rating. Other unassessed claims of a highly assessed issuer shall be treated as unrated. If either the issuer or a single issue has a low quality assessment (mapping into a risk weight equal to or higher than that which applies to unrated claims), an unassessed claim on the same counterparty that ranks pari-passu or is subordinated to either the senior unsecured issuer assessment or the exposure assessment shall be assigned the same risk weight as is applicable to the low quality assessment. iii) In circumstances where the issuer has a specific high-quality rating (one which maps into a lower risk weight) that only applies to a limited class of liabilities (such as a deposit assessment or a counterparty risk assessment), this may only be used in respect of exposures that fall within that class. iv) Where a bank intends to extend an issuer or an issue specific rating assigned by a chosen credit rating agency to any other exposure which the bank has on the same counterparty and which meets the above criterion, it should be extended to the entire amount of credit risk exposure the bank has with regard to that exposure i.e., both principal and interest. v) With a view to avoiding any double counting of credit enhancement factors, no recognition of credit risk mitigation techniques should be taken into account if the credit enhancement is already reflected in the issue specific rating accorded by a chosen credit rating agency relied upon by the bank. 31.2 If the conditions indicated in paragraph 31.1 above are not satisfied, the rating applicable to the specific debt cannot be used. This also applies to the claims on NABARD/SIDBI/NHB/MUDRA on account of deposits placed in lieu of shortfall in achievement of priority sector lending targets/sub-targets. All such claims shall be risk weighted as applicable for unrated claims. 31.3 Where unrated exposures are risk weighted based on the rating of an equivalent exposure to that borrower, the general rule is that foreign currency ratings shall be used only for exposures in foreign currency. Domestic currency ratings, if separate, shall only be used to risk weight exposures denominated in the domestic currency44. CHAPTER V - CREDIT RISK MITIGATION 32.1 Banks use a number of techniques to mitigate the credit risks to which they are exposed. For example, exposures may be collateralised in whole or in part by cash or securities, deposits from the same counterparty, guarantee of a third party, etc. For credit risk mitigants to be recognised for regulatory capital purposes these techniques should meet the requirements for legal certainty as described in paragraph 33 below. Credit risk mitigation approach as detailed in this section is applicable to the banking book exposures. 32.2 The general principles applicable to use of credit risk mitigation techniques are as under: i) No transaction in which Credit Risk Mitigation (CRM) techniques are used should receive a higher capital requirement than an otherwise identical transaction where such techniques are not used. ii) The effects of CRM shall not be double counted. Therefore, no additional supervisory recognition of CRM for regulatory capital purposes shall be granted on claims for which an issue-specific rating is used that already reflects that CRM. iii) Principal-only ratings shall not be allowed within the CRM framework. iv) While the use of CRM techniques reduces or transfers credit risk, it simultaneously may increase other risks (residual risks). Residual risks include legal, operational, liquidity and market risks. Therefore, it is imperative that banks employ robust procedures and processes to control these risks, including strategy; consideration of the underlying credit; valuation; policies and procedures; systems; control of roll-off risks; and management of concentration risk arising from the bank’s use of CRM techniques and its interaction with the bank’s overall credit risk profile. Where these risks are not adequately controlled, Reserve Bank may impose additional capital charges or take other supervisory actions. v) The disclosure requirements prescribed in Table DF-5 of Annex 17 of ‘Master Circular – Basel III Capital Regulations’ dated April 01, 2025, as amended from time to time, shall be adhered to. vi) In order for CRM techniques to provide protection, the credit quality of the counterparty must not have a material positive correlation with the employed CRM technique or with the resulting residual risks mentioned above. vii) In the case where a bank has multiple CRM techniques covering a single exposure (eg a bank has both collateral and a guarantee partially covering an exposure), the bank must subdivide the exposure into portions covered by each type of CRM technique (eg portion covered by collateral, portion covered by guarantee) and the risk-weighted assets of each portion must be calculated separately. When credit protection provided by a single protection provider has differing maturities, they must be subdivided into separate protection as well. In order for banks to obtain capital relief for any use of CRM techniques, the following minimum standards for legal documentation must be met. All documentation used in collateralised transactions, on-balance sheet netting agreements and guarantees must be binding on all parties and legally enforceable in all relevant jurisdictions. Banks must have conducted sufficient legal review, which should be well documented, to verify this requirement. Such verification should have a well-founded legal basis for reaching the conclusion about the binding nature and enforceability of the documents. Banks should also undertake such further review as necessary to ensure continuing enforceability. 34.1 For the purpose of calculating risk-weighted assets, a maturity mismatch occurs when the residual maturity of collateral is less than that of the underlying exposure. Where there is a maturity mismatch and the CRM has an original maturity of less than one year, the CRM is not recognised for capital purposes. In other cases where there is a maturity mismatch, partial recognition is given to the CRM for regulatory capital purposes as detailed below in paragraphs 34.3, 34.4 and 34.5. 34.2 In case of loans collateralised by the bank’s own deposits, even if the tenor of such deposits is less than three months or deposits have maturity mismatch vis-à-vis the tenor of the loan, the provisions of paragraph 34.1 regarding derecognition of collateral would not be attracted provided an explicit consent has been obtained from the depositor (i.e. borrower) for adjusting the maturity proceeds of such deposits against the outstanding loan or for renewal of such deposits till the full repayment of the underlying loan. 34.3 Definition of Maturity The maturity of the underlying exposure and the maturity of the collateral should both be defined conservatively. The effective maturity of the underlying should be gauged as the longest possible remaining time before the counterparty is scheduled to fulfil its obligation, taking into account any applicable grace period. For the collateral, embedded options which may reduce the term of the collateral should be taken into account so that the shortest possible effective maturity is used. The maturity relevant here is the residual maturity. 34.4 Risk Weights for Maturity Mismatches As outlined in paragraph 34.1, collateral with maturity mismatches are only recognised when their original maturities are greater than or equal to one year. As a result, the maturity of collateral for exposures with original maturities of less than one year must be matched to be recognised. In all cases, collateral with maturity mismatches will no longer be recognised when they have a residual maturity of three months or less. 34.5 When there is a maturity mismatch with recognised credit risk mitigants (collateral, on-balance sheet netting and guarantees) the following adjustment will be applied: Pa = P x ( t- 0.25 ) ÷ ( T- 0.25) where: Pa = value of the credit protection adjusted for maturity mismatch P = credit protection (e.g. collateral amount, guarantee amount) adjusted for any haircuts t = min (T, residual maturity of the credit protection arrangement) expressed in years T = min (5, residual maturity of the exposure) expressed in years 35.1 Where the credit protection is denominated in a currency different from that in which the exposure is denominated – i.e., there is a currency mismatch – the amount of the exposure deemed to be protected will be reduced by the application of a haircut HFX using the following formula: GA = G x (1- HFX) Where; G = nominal amount of the credit protection HFX = haircut appropriate for currency mismatch between the credit protection and underlying obligation. 35.2 Banks using the supervisory haircuts will apply a haircut for a 10-business day holding period (assuming daily marking to market) of eight per cent for currency mismatch. This haircut must be scaled up using the square root of time formula, depending on the frequency of revaluation of the credit protection as described in paragraph 36.8 (xii). Overview of Credit Risk Mitigation Techniques 36 Collateralised Transactions 36.1 A Collateralised Transaction is one in which: i) banks have a credit exposure and that credit exposure is hedged in whole or in part by collateral posted by a counterparty or by a third party on behalf of the counterparty. Here, “counterparty” is used to denote a party to whom a bank has an on- or off-balance sheet credit exposure. ii) banks have a specific lien on the collateral and the requirements of legal certainty are met. 36.2 Overall framework and minimum conditions 36.2.1 The framework allows banks to adopt either the simple approach, which substitutes the risk weighting of the collateral for the risk weighting of the counterparty for the collateralised portion of the exposure (generally subject to a 20 per cent floor), or the comprehensive approach, which allows precise offset of collateral against exposures, by effectively reducing the exposure amount by a volatility-adjusted value ascribed to the collateral. Banks in India shall adopt the Comprehensive Approach. Under this approach, banks, which take eligible financial collateral (e.g., cash or securities, more specifically defined below), are allowed to reduce their credit exposure to a counterparty when calculating their capital requirements to take into account of the risk mitigating effect of the collateral. Credit risk mitigation is allowed only on an account- by-account basis, even within regulatory retail portfolio. However, before capital relief shall be granted the standards set out below must be met: i) Banks that lend securities or post collateral must calculate capital requirements for both of the following: (i) the credit risk or market risk of the securities, if this remains with the bank; and (ii) the counterparty credit risk arising from the risk that the borrower of the securities may default. ii) In addition to the general requirements for legal certainty, the legal mechanism by which collateral is pledged or transferred must ensure that the bank has the right to liquidate or take legal possession of it, in a timely manner, in the event of the default, insolvency or bankruptcy (or one or more otherwise-defined credit events set out in the transaction documentation) of the counterparty (and, where applicable, of the custodian holding the collateral). Furthermore banks must take all steps necessary to fulfil those requirements under the law applicable to the bank’s interest in the collateral for obtaining and maintaining an enforceable security interest, e.g. by registering it with a registrar, or for exercising a right to net or set off in relation to the title transfer of the collateral. iii) Banks must have clear and robust procedures for the timely liquidation of collateral to ensure that any legal conditions required for declaring the default of the counterparty and liquidating the collateral are observed, and that collateral can be liquidated promptly. iv) Where the collateral is held by a custodian, banks must take reasonable steps to ensure that the custodian segregates the collateral from its own assets. v) Banks must ensure that sufficient resources are devoted to the orderly operation of margin agreements with OTC derivative and securities- financing counterparties banks, as measured by the timeliness and accuracy of its outgoing calls and response time to incoming calls. Banks must have collateral management policies in place to control, monitor and report the following to the Board or one of its Committees:
36.3 A capital requirement shall be applied to a bank on either side of the collateralised transaction: for example, both repos and reverse repos shall be subject to capital requirements. Likewise, both sides of securities lending and borrowing transactions shall be subject to explicit capital charges, as shall the posting of securities in connection with a derivative exposure or other borrowing. 36.4 Where a bank, acting as an agent, arranges, a SFT (ie., repurchase/ reverse repurchase and securities lending/ borrowing transactions) between a customer and a third party and provides a guarantee to the customer that the third party shall perform on its obligations, then the risk to the bank is the same as if the bank hand entered into the transaction as a principal. In such circumstances, a bank must calculate capital requirements as if it were itself the principal. 36.5 The Comprehensive Approach 36.5.1 In the comprehensive approach, when taking collateral, banks will need to calculate their adjusted exposure to a counterparty for capital adequacy purposes in order to take account of the risk mitigating effects of that collateral. Banks are required to adjust both the amount of the exposure to the counterparty and the value of any collateral received in support of that counterparty to take account of possible future fluctuations in the value of either, occasioned by market movements. These adjustments are referred to as ‘haircuts’. The application of haircuts will produce volatility adjusted amounts for both exposure and collateral. The volatility adjusted amount for the exposure will be higher than the exposure amount and the volatility adjusted amount for the collateral will be lower than the collateral amount, unless either side of the transaction is cash. In other words, the ‘haircut’ for the exposure will be a premium factor and the ‘haircut’ for the collateral will be a discount factor. It may be noted that the purpose underlying the application of haircut is to capture the market-related volatility inherent in the value of exposures as well as of the eligible financial collaterals. Since the value of credit exposures acquired by banks in the course of their banking operations, would not be subject to market volatility, (since the loan disbursal / investment would be a “cash” transaction) though the value of eligible financial collateral would be, the haircut stipulated in paragraph 36.8 would apply in respect of credit transactions only to the eligible collateral but not to the credit exposure of the bank. On the other hand, exposures of banks, arising out of repo-style transactions would require upward adjustment for volatility, as the value of security sold/lent/pledged in the repo transaction, would be subject to market volatility. Hence, such exposures shall attract haircut. 36.5.2 Additionally, where the exposure and collateral are held in different currencies an additional downwards adjustment must be made to the volatility adjusted collateral amount to take account of possible future fluctuations in exchange rates. 36.5.3 Where the volatility-adjusted exposure amount is greater than the volatility-adjusted collateral amount (including any further adjustment for foreign exchange risk), banks shall calculate their risk-weighted assets as the difference between the two multiplied by the risk weight of the counterparty. The framework for performing calculations of capital requirement is indicated in paragraph 36.7. 36.6 Eligible Financial Collateral The following collateral instruments are eligible for recognition in the comprehensive approach: i) Cash (as well as certificates of deposit or comparable instruments, including fixed deposit receipts issued by the lending bank) on deposit with the bank which is incurring the counterparty exposure. ii) Gold: Gold shall include both bullion and jewellery. However, the value of the collateralised jewellery should be arrived at after notionally converting these to 99.99 purity. iii) Securities issued by Central and State Governments iv) Kisan Vikas Patra and National Savings Certificates provided no lock-in period is operational and if they can be encashed within the holding period. v) Life insurance policies with a declared surrender value of an insurance company which is regulated by an insurance sector regulator. vi) Debt securities rated by a chosen Credit Rating Agency in respect of which banks should be sufficiently confident about the market liquidity45 where these are either:
vii) Debt Securities not rated by a chosen Credit Rating Agency in respect of which banks should be sufficiently confident about the market liquidity where these are:
viii) Units of Mutual Funds regulated by the securities regulator of the jurisdiction of the bank’s operation mutual funds where:
ix) Re-securitisations, irrespective of any credit ratings, are not eligible financial collateral. x) For foreign bank branches, cash/unencumbered approved securities, the source of which is interest-free funds from Head Office or remittable surplus retained in Indian books, held with RBI under section 11(2)(b)(i) of the Banking Regulation Act,1949 may be reckoned as CRM, for offsetting the gross exposure of the foreign bank branches in India to the Head Office (including overseas branches), subject to the conditions prescribed in the circular on ‘Large Exposures Framework – Credit Risk Mitigation (CRM) for offsetting – non-centrally cleared derivative transactions of foreign bank branches in India with their Head Office’ dated September 09, 2021.46 36.7 Calculation of capital requirement: 36.7.1 For a collateralised transaction, the exposure amount after risk mitigation is calculated as follows: E* = max {0, [E x (1 + He) - C x (1 - Hc - Hfx)]} where: E* = the exposure value after risk mitigation E = current value of the exposure for which the collateral qualifies as a risk mitigant He = haircut appropriate to the exposure C = the current value of the collateral received Hc = haircut appropriate to the collateral Hfx = haircut appropriate for currency mismatch between the collateral and exposure 36.7.2 In the case of maturity mismatches, the value of the collateral received (collateral amount) must be adjusted in accordance with section 34. 36.7.3 The exposure amount after risk mitigation (i.e., E*) will be multiplied by the risk weight of the counterparty to obtain the risk-weighted asset amount for the collateralised transaction. Illustrative examples calculating the effect of Credit Risk Mitigation is furnished in Annex 8 of the ‘Master Circular – Basel III Capital Regulations’ dated April 01, 2025, as amended from time to time. 36.8 Haircuts i) In principle, banks have two ways of calculating the haircuts: (i) standard supervisory haircuts, using parameters set by the Basel Committee, and (ii) own-estimate haircuts, using banks’ own internal estimates of market price volatility. Banks in India shall use only the standard supervisory haircuts for both the exposure as well as the collateral. ii) The Standard Supervisory Haircuts (assuming daily mark-to-market, daily re-margining and a 10 business-day holding period)47, expressed as percentages, shall be as furnished in Table below. iii) The ratings indicated in Table 16 represent the ratings assigned by the domestic rating agencies. In the case of exposures toward debt securities issued by foreign Central Governments and foreign corporates, the haircut may be based on ratings of the international rating agencies, as indicated in Table 17. iv) Sovereign shall include Reserve Bank of India and DICGC which are eligible for zero per cent risk weight. v) Guarantees issued by CGTMSE, CRGFTLIH and NCGTC (which are backed by an unconditional and irrevocable guarantee provided by Government of India which are eligible for zero percent risk to the extent of guarantee coverage) shall be included under Sovereign. vi) Banks may apply a zero haircut for eligible collateral where it is a National Savings Certificate, Kisan Vikas Patras, surrender value of insurance policies and banks’ own deposits. vii) The standard supervisory haircut for currency risk where exposure and collateral are denominated in different currencies is eight per cent (also based on a 10-business day holding period and daily mark-to-market).
viii) For transactions in which banks’ exposures are unrated or bank lends non-eligible instruments (i.e. non-investment grade corporate securities), the haircut to be applied on an exposure shall be 30 per cent. For transactions in which bank borrows non-eligible instruments, credit risk mitigation shall not be applied. ix) Where the collateral is a basket of assets, the haircut on the basket shall be, where ai is the weight of the asset (as measured by the amount/value of the asset in units of currency) in the basket and Hi, the haircut applicable to that asset. x) Adjustment for different holding periods: The haircut for the transactions with other than 10 business-days minimum holding period, as indicated above, shall have to be adjusted by scaling up/down the haircut for 10 business–days indicated in the Table 18 above, as per the formula given in paragraph 36.8 xii) below. xi) Adjustment for non-daily mark-to-market or remargining: xii) Formula for adjustment for different holding periods and / or non-daily mark- to-market or remargining: Where; H = haircut H10 = 10-business-day standard supervisory haircut for instrument NR = actual number of business days between remargining for capital market transactions or revaluation for secured transactions. TM = minimum holding period for the type of transaction 37 Credit Risk Mitigation Techniques – On-Balance Sheet Netting On-balance sheet netting is confined to loans/advances and deposits, where banks have legally enforceable netting arrangements, involving specific lien with proof of documentation. They may calculate capital requirements on the basis of net credit exposures subject to the following conditions: Where a bank, i) has a well-founded legal basis for concluding that the netting or offsetting agreement is enforceable in each relevant jurisdiction regardless of whether the counterparty is insolvent or bankrupt; ii) is able at any time to determine the loans/advances and deposits with the same counterparty that are subject to the netting agreement; iii) monitors and controls the relevant exposures on a net basis; and iv) monitors and controls its roll-off risks. it may use the net exposure of loans/advances and deposits as the basis for its capital adequacy calculation in accordance with the formula in paragraph 36.7. Loans/advances are treated as exposure and deposits as collateral. The haircuts will be zero except when a currency mismatch exists. All the requirements contained in paragraph 36.7 and section 34 will also apply. 38 Credit Risk Mitigation Techniques – Guarantees 38.1 Where guarantees are direct, explicit, irrevocable and unconditional banks may take account of such credit protection in calculating capital requirements. 38.2 A range of guarantors are recognised and a substitution approach will be applied. Thus, only guarantees issued by entities with a lower risk weight than the counterparty will lead to reduced capital charges since the protected portion of the counterparty exposure is assigned the risk weight of the guarantor, whereas the uncovered portion retains the risk weight of the underlying counterparty. 38.3 Detailed operational requirements for guarantees eligible for being treated as a CRM are as under: 38.4 Operational requirements for Guarantees 38.4.1 If conditions set below are met, banks can substitute the risk weight of the counterparty with the risk weight of the guarantor. 38.4.2 A guarantee (counter-guarantee) must represent a direct claim on the protection provider and must be explicitly referenced to specific exposures or a pool of exposures, so that the extent of the cover is clearly defined and incontrovertible. The guarantee must be irrevocable; there must be no clause in the contract that would allow the protection provider to unilaterally cancel the cover or that would increase the effective cost of cover as a result of deteriorating credit quality in the guaranteed exposure. The guarantee must also be unconditional; there should be no clause in the guarantee outside the direct control of the bank that could prevent the protection provider from being obliged to pay out in a timely manner in the event that the original counterparty fails to make the payment(s) due. 38.4.3 In the case of maturity mismatches, the amount of credit protection that is provided must be adjusted in accordance with section 34. 38.4.4 All exposures will be risk weighted after taking into account risk mitigation available in the form of guarantees. When a guaranteed exposure is classified as non-performing, the guarantee will cease to be a credit risk mitigant and no adjustment would be permissible on account of credit risk mitigation in the form of guarantees. The entire outstanding, net of specific provision and net of realisable value of eligible collaterals / credit risk mitigants, will attract the appropriate risk weight. 38.4.5 Additional operational requirements for guarantees In addition to the legal certainty requirements in paragraph 33 above, in order for a guarantee to be recognised, the following conditions must be satisfied: i) On the qualifying default/non-payment of the counterparty, the bank is able in a timely manner to pursue the guarantor for any monies outstanding under the documentation governing the transaction. The guarantor shall make one lump sum payment of all monies under such documentation to the bank, or the guarantor shall assume the future payment obligations of the counterparty covered by the guarantee. The bank must have the right to receive any such payments from the guarantor without first having to take legal actions in order to pursue the counterparty for payment. ii) The guarantee is an explicitly documented obligation assumed by the guarantor. iii) Except as noted in the following sentence, the guarantee covers all types of payments the underlying obligor is expected to make under the documentation governing the transaction, for example notional amount, margin payments etc. Where a guarantee covers payment of principal only, interests and other uncovered payments should be treated as an unsecured amount in accordance with paragraph 38.7. 38.5 Range of Eligible Guarantors (Counter-Guarantors) Credit protection given by the following entities will be recognised: i) Sovereigns, sovereign entities (including BIS, IMF, European Central Bank and European Community as well as those MDBs referred to in section 10, ECGC and CGTMSE, CRGFTLIH, individual schemes under NCGTC which are backed by explicit Central Government Guarantee), banks and primary dealers with a lower risk weight than the counterparty. ii) Other entities that are externally rated except when credit protection is provided to a securitisation exposure. This would include credit protection provided by parent, subsidiary and affiliate companies when they have a lower risk weight than the obligor. iii) When credit protection is provided to a securitisation exposure, other entities that currently are externally rated BBB- or better and that were externally rated A- or better at the time the credit protection was provided. This would include credit protection provided by parent, subsidiary and affiliate companies when they have a lower risk weight than the obligor. iv) In case of securitisation transactions, SPEs cannot be recognised as eligible guarantors. 38.6 Risk Weights 38.6.1 The protected portion is assigned the risk weight of the protection provider. Exposures covered by State Government guarantees shall attract a risk weight of 20 per cent. The uncovered portion of the exposure is assigned the risk weight of the underlying counterparty. 38.6.2 Materiality thresholds on payments below which the protection provider is exempt from payment in the event of loss are equivalent to retained first-loss positions. The portion of the exposure that is below a materiality threshold shall be subject to full capital deduction by the bank purchasing the credit protection. 38.6.3 As per paragraph 7.13 of ‘Large Exposures Framework’ dated June 03, 2019, any CRM instrument from which CRM benefits like shifting of exposure/ risk weights etc. are not derived may not be counted as an exposure on the CRM provider. In case of non-fund based credit facilities provided to a person resident outside India where CRM benefits are not derived and the exposure is shifted to the non-resident person, such exposures to the non-resident person shall attract a minimum risk weight of 150 per cent. 38.7 Proportional Cover Where the amount guaranteed, or against which credit protection is held, is less than the amount of the exposure, and the secured and unsecured portions are of equal seniority, i.e. the bank and the guarantor share losses pari passu on a pro-rata basis capital relief will be afforded on a proportional basis: i.e. the protected portion of the exposure will receive the treatment applicable to eligible guarantees, with the remainder treated as unsecured. 38.8 Tranched Cover Where the bank transfers a portion of the risk of an exposure in one or more tranches to a protection seller or sellers and retains some level of the risk of the loan, and the risk transferred and the risk retained are of different seniority, banks may obtain credit protection for either the senior tranches (eg the second-loss portion) or the junior tranche (eg the first-loss portion). In this case the rules as set out in the securitization standard apply. 38.9 Sovereign Guarantees and Counter-Guarantees A claim may be covered by a guarantee that is indirectly counter-guaranteed by a sovereign. Such a claim shall be treated as covered by a sovereign guarantee provided that: i) the sovereign counter-guarantee covers all credit risk elements of the claim; ii) both the original guarantee and the counter-guarantee meet all operational requirements for guarantees, except that the counter-guarantee need not be direct and explicit to the original claim; and iii) the cover should be robust and no historical evidence suggests that the coverage of the counter-guarantee is less than effectively equivalent to that of a direct sovereign guarantee. 38.10 ECGC Guaranteed Exposures: Under the Export Credit insurance49 for banks on Whole Turnover Basis, the guarantee/insurance cover given by ECGC for export credit exposures of the banks ranges between 50 per cent and 75 per cent for pre-shipment credit and 50 per cent to 85 per cent in case of post-shipment credit. However, the ECGC’s total liability on account of default by the exporters is capped by an amount specified as Maximum Liability (ML). In this context, it is clarified that risk weight (as given in paragraph 7.6 of these guidelines) applicable to the claims on ECGC should be capped to the ML amount specified in the whole turnover policy of the ECGC. The banks are required to proportionately distribute the ECGC maximum liability amount to all individual export credits that are covered by the ECGC Policy. For the covered portion of individual export credits, the banks shall apply the risk weight applicable to claims on ECGC. For the remaining portion of individual export credit, the banks shall apply the risk weight as per the rating of the counter-party. The Risk Weighted Assets computation can be mathematically represented as under: 1 Refer section 24 in Chapter IV 2 Please refer to the circular on ‘Review of Prudential Norms – Risk Weights for Exposures guaranteed by Credit Guarantee Schemes (CGS)’ dated September 7, 2022. 3 NPA classification shall be as per extant ‘Master Circular - Prudential norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances’ dated April 1, 2025, as amended from time to time 4 For example: The risk weight assigned to an investment in US Treasury Bills by overseas branch of an Indian bank in Paris, irrespective of the currency of funding, shall be determined by the rating assigned to the Treasury Bills, as indicated in Table 1 above. 5 For claims held in Trading book, please see the paragraph 8.3.4 under ‘capital charge for market risk’ of ‘Master Circular – Basel III Capital Regulations’ dated April 1, 2025 6 This may include on-balance sheet exposures such as loans and off-balance sheet exposures such as self-liquidating trade-related contingent items. 7 For claims held in Trading book, please see the paragraph 8.3.4 under ‘capital charge for market risk’ of ‘Master Circular – Basel III Capital Regulations’ dated April 1, 2025. 8 This may include on-balance sheet exposures such as loans and off-balance sheet exposures such as self-liquidating trade-related contingent items 9 Basel Committee on Banking Supervision, ‘Treatment of trade finance under the Basel capital framework’, October 2011. 10 Exposures include all fund based and non-fund based exposures other than those which qualify for inclusion under ‘sovereign’, ‘bank/AIFIs’, ‘regulatory retail’, ‘residential mortgage’, ‘non performing assets’, or any other specified category addressed separately in these guidelines. 11 For validity of ratings, please refer paragraph 25.4 of these guidelines. 12 To apply the 0.2 per cent threshold of the granularity criterion, banks must: first, identify the full set of exposures in the retail exposure class (as defined by paragraph 14.2(i)); second, identify the subset of exposure that meet product criterion and do not exceed the threshold for the value of aggregated exposures to one counterparty (as defined by paragraphs 14.2(ii) and 14.2(iii) respectively); and third, exclude any exposures that have a value greater than 0.2 per cent of the subset before exclusions. 13 The valuation must be done independently from the bank’s mortgage acquisition, loan processing and loan decision process. 14 Companies (Registered Valuers and Valuation) Rules, 2017 15 In the case where the mortgage loan is financing the purchase of the property, the value of the property for LTV purposes shall not be higher than the effective purchase price. 16 A bank’s use of mortgage insurance should mirror the FSB Principles for sound residential mortgage underwriting (April 2012). 17 Cash flows from the property securing the loan is more than 50 per cent of the periodic loan servicing amount 18 Cash flows from the property securing the loan is more than 50 per cent of the periodic loan servicing amount 19 Cash flows from the property securing the loan is more than 50 per cent of the periodic loan servicing amount 20 A bank is only required to apply the 1.5 factor for transactions that are within the scope of the CVA framework. 21 For instance, any exposure that is subject to a 20 per cent risk weight under the standardized approach would be weighted at 24 per cent (1.2 * 20%) when the look through is performed by a third party. 22 Information used for this purpose is not strictly limited to a fund’s mandate or national regulations governing like funds. It may also be drawn from other disclosures of the fund. 23 For instance, for investments in corporate bonds with no ratings restrictions, a risk weight of 150 per cent must be applied. 24 If the underlying is unknown, the full notional amount of derivative positions must be used for the calculation. 25 If the notional amount of derivatives is unknown, it shall be estimated conservatively using the maximum notional amount of derivatives allowed under the mandate. 26 For instance, if both the replacement cost and add-on components are unknown, the CCR exposure shall be calculated as: 1.4 * (sum of notionals in netting set +0.15*sum of notionals in netting set) under SACCR. 27 A bank is only required to apply the 1.5 factor for transactions that are within the scope of the CVA framework. The transactions excluded are: (i) transactions with a central counterparty and (ii) securities financing transactions (SFTs). 28 In this context, ‘entities’ means Corporates and MSMEs which have borrowed from banks in INR and other currencies. 29 Incremental provisioning requirement on the total credit exposures over and above extant standard asset provisioning shall apply based on the level of likely loss/EBID ratio:-
30 EBID is defined for computation of DSCR = Profit after Tax + Depreciation + Interest on debt + Lease Rentals, if any. 31 Natural Hedge: An exposure shall be considered as naturally hedged only if the offsetting exposure has the maturity / cash flow within the same accounting year. For instance, export revenues (booked as receivable) may offset the exchange risk arising out of repayment obligations of an external commercial borrowing if both the exposures have cash flows / maturity within the same accounting year. 32 Financial hedge shall be considered only where the entity/individual has documented the purpose and the strategy for hedging at inception of the derivative contract and assessed its effectiveness as a hedging instrument at periodic intervals. For the purpose of assessing the effectiveness of hedge, guidance may be taken from the applicable accounting standards and the relevant guidance notes of the Institute of Chartered Accountants of India on the matter. 33 For example: (a) In the case of a cash credit facility for ₹100 lakh (which is not unconditionally cancellable) where the drawn portion is ₹60 lakh, the undrawn portion of ₹40 lakh shall attract a CCF of 40 per cent. The credit equivalent amount of ₹16 lakh (40 per cent of ₹40 lakh) will be assigned the appropriate risk weight as applicable to the counterparty / rating to arrive at the risk weighted asset for the undrawn portion. The drawn portion (₹60 lakh) will attract a risk weight as applicable to the counterparty / rating. 34 The aggregate capital required to be maintained by the banks providing Partial Credit Enhancement will be computed as provided in circular ‘Partial Credit Enhancement to Corporate Bonds’ dated September 24, 2015, as amended from time to time. 35 With maturity below one year 36 However, this shall be subject to banks demonstrating that they are actually able to cancel any undrawn commitments in case of deterioration in a borrower’s credit worthiness failing which the credit conversion factor applicable to such facilities which are not cancellable shall apply. Banks’ compliance to these guidelines shall be assessed under Annual Financial Inspection / Supervisory Review and Evaluation Process under Pillar 2 of RBI. 37 Under T+1 settlement cycle, the exposure shall normally be for intraday. However, in case any exposure remains outstanding at the end of T+1 Indian Standard Time, the same shall be risk weighted at 125 per cent. 38 Please refer to circular ‘Basel III Capital Regulations - Eligible Credit Rating Agencies (ECAI)’ dated July 10, 2024. 39 Please refer to circular Please refer to circular ‘Basel III Capital Regulations - Eligible Credit Rating Agencies (ECAI)’ dated July 10, 2024. 40 paragraph 25.4 of these guidelines 41 Please refer to circular ‘Basel III Capital Regulations - Eligible Credit Rating Agencies (ECAI)’ dated July 10, 2024. 42 paragraph 25.4 of these guidelines 43 In a case where a short term claim on a counterparty is rated as A1+ and a long term claim on the same counterparty is rated as AAA, then a bank may assign a 30 per cent risk weight to an unrated short term claim and 20 per cent risk weight to an unrated long term claim on that counterparty where the seniority of the claim ranks pari-passu with the rated claims and the maturity of the unrated claim is not later than the rated claim. In a similar case where a short term claim is rated A1+ and a long term claim is rated A, the bank may assign 50 per cent risk weight to an unrated short term or long term claim 44 However, when an exposure arises through a bank’s participation in a loan that has been extended, or has been guaranteed against convertibility and transfer risk, by certain MDBs, its convertibility and transfer risk is considered to be effectively mitigated. To qualify, MDBs must have preferred creditor status recognised in the market and be included in paragraph 10.1. In such cases, for risk-weighting purposes, the borrower’s domestic currency rating may be used instead of its foreign currency rating. In the case of a guarantee against convertibility and transfer risk, the local currency rating can be used only for the portion that has been guaranteed. The portion of the loan not benefiting from such a guarantee shall be risk-weighted based on the foreign currency rating 45 A debenture would meet the test of liquidity if it is traded on a recognised stock exchange(s) on at least 90 per cent of the trading days during the preceding 365 days. Further, liquidity can be evidenced in the trading during the previous one month in the recognised stock exchange if there are a minimum of 25 trades of marketable lots in securities of each issuer. 46 As mentioned in the referenced circular, the amount so held shall not be included in regulatory capital. (i.e., no double counting of the fund placed under Section 11(2) as both capital and CRM). Accordingly, while assessing the capital adequacy of a bank, the amount shall form part of regulatory adjustments made to Common Equity Tier 1 Capital. 47 Holding period shall be the time normally required by the bank to realise the value of the collateral 48 Including those backed by securities issued by foreign sovereigns and foreign corporates |
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