What changed
The amendment revises paragraph 74(6) of the Prudential Norms on Capital Adequacy Directions, 2025. It specifies that an irrevocable payment commitment issued by a bank to a clearing corporation on behalf of a client is a financial guarantee with a 100% credit conversion factor. However, capital must be maintained only on the exposure reckoned as capital market exposure (CME) under the Concentration Risk Management Directions, 2025, with a risk weight of 125%.
What it means for you
Small Finance Banks must now allocate capital for these commitments based on the CME amount, not the full guarantee value, but at a higher risk weight of 125%. This aligns treatment with other capital market exposures and may increase capital requirements for banks active in client clearing. The change takes effect from the earlier of the bank's implementation of related credit facility amendments or July 1, 2026.
What you must do
- Review and update internal capital adequacy models to apply 125% risk weight on irrevocable payment commitments treated as CME.
- Coordinate with treasury and risk teams to align implementation with the Credit Facilities Amendment Directions, 2026.
- Ensure systems capture CME amounts correctly for these commitments to avoid capital shortfalls.
- Prepare for effective date: earlier of bank's chosen implementation or July 1, 2026.
Who it affects
Small Finance Banks, Risk management departments of SFBs, Treasury and capital planning teams, Clearing corporation members among SFBs
What is the credit conversion factor for irrevocable payment commitments under this amendment?
The amendment specifies a 100% credit conversion factor for such commitments, but capital is maintained only on the amount taken as capital market exposure.
When does this revised direction come into effect?
It is effective from the earlier of the date a bank decides to implement the related Credit Facilities Amendment Directions, 2026, or July 1, 2026.
Does this supersede any previous direction?
Yes, it supersedes the Reserve Bank of India (Small Finance Banks - Prudential Norms on Capital Adequacy) Second Amendment Directions, 2026 dated February 13, 2026.