The Reserve Bank of India has updated its capital adequacy norms for commercial banks, issuing the Twelfth Amendment Directions, 2026 on October 7, 2026. These changes align India’s banking regulations with international standards on capital adequacy. The amendment takes effect immediately from the date of issue.
Key Changes to Capital Adequacy Norms
The RBI has revised two important provisions under its existing Capital Adequacy Directions, 2025. First, the amendment clarifies the risk weight applied to clearing member banks. Where a bank acts as a clearing member of a Qualified Central Counterparty (QCCP), a 2% risk weight now applies to trade exposures involving OTC derivatives, exchange-traded derivatives, and Securities Financing Transactions (SFTs).
Additionally, this 2% risk weight extends to situations where the clearing member bank offers services to clients. For example, if the bank must reimburse a client for losses when a QCCP defaults, the same risk weight applies. This provides greater clarity for banks managing client clearing operations.
The second key change involves Credit Valuation Adjustment (CVA) losses. Banks must now calculate CVA loss as the amount already recognised in their financial statements. However, they cannot offset this against debit valuation adjustments deducted from capital. Furthermore, this reduction in Exposure at Default (EAD) does not apply when calculating the CVA risk capital requirement.
What This Means for Bank Compliance
As a result of this amendment, banks must maintain clear documentation of all CVA amounts written down. They must also reconcile these figures with their financial statements. Therefore, internal audit and risk teams should review their current processes promptly.
The RBI has also deleted sub-paragraphs 213(2)(iv)(c), (d), and (e) from the original directions. This simplifies the regulatory framework around CVA loss calculations. Meanwhile, the overall goal remains consistent with Basel international capital adequacy standards.
Banks acting as clearing members should review their risk-weight calculations under the updated capital adequacy norms. Compliance officers must ensure documentation practices meet the new requirements without delay. The circular was signed by Sunil T S Nair, Chief General Manager, RBI.
Read the official RBI notification here.
Source: RBI Notifications
