Banks’ Exposure to Central Counterparties (CCPs) - Interim Arrangements

RBI/2013-14/430
DBOD.No.BP.BC.82/21.06.217/2013-14

January 7, 2014

The Chairman and Managing Director/
Chief Executive Officer of
All Scheduled Commercial Banks
(Excluding Regional Rural Banks)

Dear Sir / Madam,

Banks’ Exposure to Central Counterparties (CCPs) - Interim Arrangements

In terms of para 2.1.1.1 of the Master Circular on Exposure Norms dated July 1, 2013, the exposure limit applicable to a single counterparty of a bank is 15 per cent of its capital funds.

2. The recent financial crisis has highlighted the need to promote a central clearing of standardized over-the-counter (OTC) derivative products through a Central Counterparty (CCP). It has, therefore, been decided that as an interim measure, a bank’s clearing exposure to a Qualifying CCP (QCCP) will be kept outside of the exposure ceiling of 15 per cent of its capital funds applicable to a single counterparty. Clearing exposure would include trade exposure and default fund exposure as defined in the guidelines on capital requirements for banks’ exposure to central counterparties issued vide Circular DBOD.No.BC.28/21.06.201/ 2013-14 dated July 2, 2013. Other exposures to QCCPs such as loans, credit lines, investments in the capital of CCP, liquidity facilities, etc. will continue to be within the existing exposure ceiling of 15 per cent of capital funds to a single counterparty. However, all exposures of a bank to a non-QCCP should be within this exposure ceiling of 15 per cent.