RBI has introduced the Credit Valuation Adjustment (CVA) Framework for commercial banks, mandating capital charges for counterparty credit risk in derivative contracts to align with global standards.
RBI Introduces Credit Valuation Adjustment Framework
The Reserve Bank of India, on October 7, 2026, issued the 'Reserve Bank of India (Commercial Banks – Credit Valuation Adjustment Framework) Directions, 2026', establishing a comprehensive framework for measuring and capitalizing credit valuation adjustments. The framework applies to commercial banks engaged in over-the-counter (OTC) derivative transactions and aims to strengthen risk-based capital adequacy.
The Directions require banks to compute capital charges for counterparty credit risk arising from potential changes in the credit quality of counterparties. This includes incorporating CVA risk into the bank’s internal capital adequacy assessment process (ICAAP) and enhancing disclosure requirements under Pillar 3 of the Basel framework.
Implication for Practitioners: Legal and risk advisory teams must ensure banks update their risk models and reporting mechanisms. Compliance with the CVA framework will necessitate coordination between finance, legal, and regulatory departments to meet new capital and disclosure obligations.
Citations
- Reserve Bank of India (Commercial Banks – Credit Valuation Adjustment Framework) Directions, 2026