What changed
RBI amended paragraph 84(6) of the Capital Adequacy Directions to specify that irrevocable payment commitments issued by banks to clearing corporations for clients are financial guarantees with a 100% credit conversion factor. Capital must now be maintained only on the amount treated as capital market exposure under the Concentration Risk Management Directions, with a risk weight of 125%.
What it means for you
Banks will need to allocate more capital for these commitments, as the 125% risk weight is higher than typical corporate exposures. This aligns capital treatment with the higher risk of capital market exposures, potentially increasing capital costs for banks offering such facilities to clients.
What you must do
- Review and update internal capital adequacy models to apply 125% risk weight on irrevocable payment commitments to clearing corporations.
- Ensure compliance with the effective date: either the date of implementing Credit Facilities Amendment Directions or April 1, 2026, whichever is earlier.
- Coordinate with treasury and risk teams to recalibrate exposure limits and capital planning for capital market exposures.
- Communicate the revised capital treatment to relevant business units handling client clearing and settlement services.
Who it affects
Commercial banks issuing irrevocable payment commitments to clearing corporations, Risk management and capital planning teams, Treasury and wholesale banking divisions handling capital market exposures
What is the effective date for this amendment?
The amendment applies from the date a bank decides to implement the Credit Facilities Amendment Directions, 2026, or from April 1, 2026, whichever is earlier.
Does this change apply to all types of payment commitments?
No, it specifically applies to irrevocable payment commitments issued by banks to clearing corporations of stock exchanges on behalf of clients.
How does this affect capital calculation for existing commitments?
Existing commitments must be re-evaluated under the new rules from the effective date, with capital maintained at 125% risk weight on the capital market exposure amount.