RBI introduces Credit Valuation Adjustment (CVA) framework for commercial banks from April 2027, prescribing capital charges, risk weights and disclosures.
RBI Launches CVA Framework for Commercial Banks
The Reserve Bank of India (RBI) has issued the Credit Valuation Adjustment (CVA) Framework Directions, 2026, introducing capital charges for market risk arising from counterparty credit deterioration in derivative portfolios. The framework will be implemented from April 2027.
The CVA framework mandates banks to calculate and hold capital against the risk that counterparty creditworthiness may decline between valuation dates. It includes provisions on risk weights, acceptable hedging strategies, Exposure at Default (EAD) calculations, and quarterly disclosures. The directions apply to all over-the-counter (OTC) derivatives.
This initiative strengthens India’s alignment with Basel III standards. Banks must upgrade valuation models and establish internal CVA desks. Legal and compliance teams should work with risk departments to ensure proper implementation and audit readiness.