What changed
Earlier, any change in a derivative contract's parameters was treated as restructuring under the October 2008 circular. Now, RBI explicitly exempts changes made solely to shift from LIBOR to an alternative reference rate from being classified as restructuring, as long as no other terms are altered.
What it means for you
Banks can amend derivative contracts to replace LIBOR with new reference rates without triggering restructuring-related prudential norms. This reduces operational and capital burden, allowing smoother transition for legacy contracts. Lenders must ensure only the reference rate changes and document compliance to avoid misclassification.
What you must do
- Review all derivative contracts referencing LIBOR and identify those needing reference rate changes.
- Ensure amendments are limited to the reference rate switch, keeping all other parameters unchanged.
- Maintain clear documentation for each contract to demonstrate compliance with the exemption condition.
- Update internal policies and training to reflect this relaxation for LIBOR transition cases.
Who it affects
Banks with derivative exposures tied to LIBOR, Treasury and risk management teams handling derivative contracts, Compliance and audit functions overseeing off-balance sheet exposures
Does this relaxation apply to any change in derivative contract terms?
No, it applies only when the change is solely to replace LIBOR with an alternative reference rate, and all other contract parameters remain unchanged.
What happens if we change other terms along with the reference rate?
If any other parameter is altered, the entire change will be treated as restructuring under the existing norms, and this exemption won't apply.