RBI circular on large exposures framework communicates the central bank's decision that non-centrally cleared derivatives exposures will be outside the purview of exposure limits until April 01, 2021. The circular also provides clarification with respect to the guidelines on credit risk mitigation instruments under the large exposures framework. The circular is applicable to all scheduled commercial banks, excluding regional rural banks.
According to the large exposures framework circular dated June 03, 2019, any credit risk mitigation instrument from which credit risk mitigation benefits, such as shifting of exposure or risk-weights, are not derived may not be counted as an exposure on the credit risk mitigation provider. Banks had sought clarity on whether this specific guideline will apply to exposures to a person resident outside India. In this context, RBI has clarified that this clause will also apply to non-fund-based credit facilities provided to a person resident outside India. The exposure can be reckoned on the person resident outside India, instead of treating it as an exposure on the Head Office or other overseas branch, provided the transaction is otherwise compliant with the Foreign Exchange Management (Guarantees) Regulations, 2000. The exposures, thus, shifted to a person resident outside India will attract a minimum risk-weight of 150%.
Keywords: Asia Pacific, India, Banking, Large Exposures, Basel III, Non-Centrally Cleared Derivatives, Credit Risk, Derivatives, Regulatory Capital, RBI
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