RBI issues Credit Valuation Adjustment Framework Directions, 2026 for commercial banks, effective 1 April 2027; six amendment directions issued the same day
RBI has issued the Reserve Bank of India (Commercial Banks – Credit Valuation Adjustment Framework) Directions, 2026, which set out how commercial banks must compute the capital charge for CVA risk on derivatives. The Directions come into effect from 1 April 2027. Six amendment directions were issued the same day: two take effect from 1 April 2027 and four, on exposures to qualifying central counterparties, from the date of issue.
Key facts
- In force
- CVA Directions and two amendments from 1 April 2027; four capital adequacy amendments from 7 October 2026
- Who it affects
- Commercial banks with derivative exposures; Small Finance Banks, Payments Banks and AIFIs that are clearing members of a QCCP
- What it is
- Rule change
- Section
- FEMA & RBI
- Published
- 7 October 2026
In 30 seconds
- The CVA Framework Directions (RBI/DOR/2026-27/474, 7 October 2026) apply to commercial banks, excluding Small Finance Banks, Payments Banks and Local Area Banks, from 1 April 2027.
- Banks must use the Basic Approach (BA-CVA), in a reduced version without hedge recognition or a full version that recognises eligible counterparty credit spread hedges.
- A bank with non-centrally cleared derivatives of ₹10 lakh crore or less in aggregate notional, on a consolidated group-wide basis, may instead set its CVA capital requirement at 100 per cent of its counterparty credit risk capital requirement.
- Risk-weighted assets for CVA risk are the capital charge multiplied by 12.5; CVA disclosures form part of Pillar 3.
- The Forthcoming Instructions Amendment Directions (SA-CCR) apply from 1 April 2027 to commercial banks with an international presence or derivatives outstanding of ₹25,000 crore and above in book value.
- Four capital adequacy amendment directions, for commercial banks, Small Finance Banks, Payments Banks and AIFIs, apply a 2 per cent risk weight to a clearing member’s trade exposure to a QCCP, from the date of issue.
हिंदी में सार
RBI ने 7 अक्टूबर 2026 को वाणिज्यिक बैंकों के लिए क्रेडिट वैल्यूएशन एडजस्टमेंट (CVA) फ्रेमवर्क निदेश, 2026 जारी किए, जो 1 अप्रैल 2027 से लागू होंगे। बैंकों को डेरिवेटिव पर CVA जोखिम के लिए पूंजी प्रभार बेसिक अप्रोच (BA-CVA) से निकालना होगा; ₹10 लाख करोड़ या उससे कम नोशनल वाले बैंक वैकल्पिक तरीका चुन सकते हैं। उसी दिन छह संशोधन निदेश भी जारी हुए — SA-CCR और विविध संशोधन 1 अप्रैल 2027 से, और QCCP पर 2 प्रतिशत जोखिम भार वाले चार पूंजी पर्याप्तता संशोधन जारी होने की तारीख से लागू हैं।
What RBI has issued
On 7 October 2026 the Reserve Bank issued the Reserve Bank of India (Commercial Banks – Credit Valuation Adjustment Framework) Directions, 2026 (RBI/DOR/2026-27/474) under Section 35A of the Banking Regulation Act, 1949. Draft Directions had been issued on 7 August 2026 for feedback.
What CVA is, as the Directions define it
Credit Valuation Adjustment is specified at a counterparty level and reflects the adjustment to the default risk-free price of a derivative or securities financing transaction (SFT) due to a potential default of the counterparty. In the Directions it means regulatory CVA, which excludes the effect of the bank’s own default.CVA risk is the risk of losses arising from changes in CVA values in response to changes in counterparty credit spreads and market risk factors.
Applicability and commencement
- The Directions apply to Commercial Banks: banking companies (other than Small Finance Banks, Payments Banks and Local Area Banks), corresponding new banks and the State Bank of India.
- They come into effect from 1 April 2027. On that date, paragraph 85(3) of the Commercial Banks – Prudential Norms on Capital Adequacy Directions, 2025 stands repealed.
Main requirements
- Scope: a bank must calculate CVA capital requirements on a standalone basis for all covered transactions in both the banking book and the trading book. Covered transactions are all derivatives except those transacted directly with a qualifying central counterparty (QCCP) and certain others specified. SFT trades are excluded from the calculation.
- Basic Approach (BA-CVA): a bank may choose the full version or the reduced version. The reduced version does not recognise hedges; the full version recognises counterparty credit spread hedges.
- Alternate treatment: a bank whose aggregate notional amount of non-centrally cleared derivatives, on a consolidated group-wide basis, is ₹10 lakh crore or less as at the reporting date may set its CVA capital requirement equal to 100 per cent of its capital requirement for counterparty credit risk. Such a bank cannot recognise CVA hedges. The supervisory authority may not permit this option where CVA risk materially contributes to the bank’s overall risk.
- Risk weights: supervisory risk weights depend on the counterparty’s sector and credit quality, from 0.5 per cent (investment-grade sovereigns) to 12.0 per cent (high-yield or not-rated financials and other sectors).
- Eligible hedges: only single-name CDS, single-name contingent CDS and index CDS can be eligible; banks are currently not permitted to engage in single-name contingent CDS.
- RWA and disclosure: risk-weighted assets for CVA risk equal the capital charge multiplied by 12.5. Pillar 3 disclosures are required in Table CVAA and Templates CVA1 and CVA2.
The six amendment directions of 7 October 2026
| Directions | What changes | Effective |
|---|---|---|
| Commercial Banks – Forthcoming Instructions Amendment Directions, 2026 (RBI/2026-27/284) | Paragraphs 7 to 21 of the 2025 Directions, on capital requirements for counterparty credit risk, are substituted by paragraphs 6A to 21; Annex 2 and Annex 3 are inserted. Applies to commercial banks with an international presence or book value of derivatives outstanding of ₹25,000 crore and above on a consolidated group-wide basis; other commercial banks may choose the Current Exposure Method or SA-CCR. | 1 April 2027 |
| Commercial Banks – Miscellaneous Amendment Directions, 2026 (RBI/2026-27/285) | Sub-section D of Chapter IV (paragraph 38), on deferment of option premium, is deleted. | 1 April 2027 |
| Commercial Banks – Capital Adequacy Twelfth Amendment Directions, 2026 (RBI/2026-27/286) | Paragraph 85(6)(i)(a) replaced: 2 per cent risk weight on a clearing member bank’s trade exposure to a QCCP. Paragraph 213(2)(iv)(b)(i) on incurred CVA losses replaced; paragraph 213(2)(iv)(c), (d) and (e) deleted. | Date of issue |
| Small Finance Banks – Capital Adequacy Sixth Amendment Directions, 2026 (RBI/2026-27/287) | Paragraph 75(5)(i)(a) replaced with the same 2 per cent QCCP provision. | Date of issue |
| Payments Banks – Capital Adequacy Third Amendment Directions, 2026 (RBI/2026-27/288) | Paragraph 52(5)(i)(a) replaced with the same provision. | Date of issue |
| AIFIs – Capital Adequacy Fifth Amendment Directions, 2026 (RBI/2026-27/289) | Paragraph 77(6)(i)(a) replaced with the same provision, worded for AIFIs. | Date of issue |
Under the replaced QCCP provision, the 2 per cent risk weight applies to trade exposure in OTC derivatives, exchange traded derivatives and SFTs, and also where a clearing member offering clearing services is obligated to reimburse the client for losses if the QCCP defaults. RBI says these amendments align the Directions with international standards.
What this story does not cover
The BA-CVA formulas, the annexes and the detailed SA-CCR text of the Forthcoming Instructions amendment are not summarised here.
Questions and answers
Which banks do the CVA Framework Directions apply to?
Commercial Banks, meaning banking companies other than Small Finance Banks, Payments Banks and Local Area Banks, corresponding new banks and the State Bank of India.
From when do the CVA Framework Directions apply?
From 1 April 2027. On that date paragraph 85(3) of the Commercial Banks – Prudential Norms on Capital Adequacy Directions, 2025 stands repealed.
Can a bank avoid the BA-CVA calculation?
A bank whose aggregate notional amount of non-centrally cleared derivatives, on a consolidated group-wide basis, is ₹10 lakh crore or less as at the reporting date may opt for the alternate treatment: a CVA capital requirement equal to 100 per cent of its counterparty credit risk capital requirement. It cannot recognise CVA hedges, and the supervisory authority may not permit the option if CVA risk materially contributes to the bank’s overall risk.
Which of the amendment directions are already in force?
The four capital adequacy amendment directions, for commercial banks (Twelfth), Small Finance Banks (Sixth), Payments Banks (Third) and AIFIs (Fifth), came into effect from the date of issue, 7 October 2026. The Forthcoming Instructions and Miscellaneous amendment directions take effect from 1 April 2027.
To whom do the SA-CCR amendments apply?
To commercial banks with an international presence or with book value of derivatives outstanding of ₹25,000 crore and above as on the reporting date, on a consolidated group-wide basis. Remaining commercial banks may choose either the Current Exposure Method or SA-CCR.
Published 7 October 2026. Updated 10 October 2026. This report is for general information and is not professional advice. Read the source document before acting on it.