In short: On 7 October 2026 the RBI issued final Directions on the capital charge for credit valuation adjustment (CVA) risk, effective 1 April 2027. Commercial banks must use the Basic Approach (BA-CVA), unless their group-wide non-centrally cleared derivatives notional is ₹10 lakh crore or less and they opt for the alternative treatment.
Key facts
| Authority | Reserve Bank of India (RBI), Department of Regulation |
|---|---|
| Instrument | Reserve Bank of India (Commercial Banks – Credit Valuation Adjustment Framework) Directions, 2026, RBI/DOR/2026-27/474, issued under section 35A of the Banking Regulation Act, 1949 |
| Issue date | 7 October 2026 (draft released 7 August 2026) |
| Effective date | 1 April 2027 (para 2) |
| Applies to | Commercial banks, including the State Bank of India and new banks; Small Finance Banks, Payments Banks and Local Area Banks are excluded (para 3) |
| Status | Final, not yet in effect No amendment or withdrawal shown on the RBI page on 14 October 2026 |
| Official source | https://www.rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=13729 |
| Last verified | 14 October 2026, against the RBI Directions page, the full text, the RBI press release and the Forthcoming Instructions Amendment Directions |
What do the Directions require?
Scope
A bank calculates CVA capital on a standalone basis for the banking book and the trading book. Covered transactions are all derivatives except those with a qualifying central counterparty (QCCP), including overseas-branch transactions; securities financing transactions are excluded (paras 4(2), 6).
Default method
Banks use BA-CVA. A bank may choose the reduced version or the full version. The reduced version does not recognise hedges and is meant for banks that do not hedge CVA risk. The full version recognises credit spread hedges. A bank using the full version must still calculate the reduced version (para 12).
Alternative treatment
- IF
The bank’s consolidated group-wide notional of non-centrally cleared derivatives is ₹10 lakh crore or less at the reporting date?
- NO
The bank is above the ceiling and applies BA-CVA from that reporting date.
- YES
The bank may opt out of BA-CVA. Its CVA capital then equals 100 per cent of its counterparty credit risk capital requirement, with no recognition of CVA hedges.
- BUT
Even within the ceiling, the supervisory authority may not permit the option where CVA risk materially contributes to the bank’s overall risk (para 8, proviso).
How is BA-CVA built?
BA-CVA parameters
Reduced version = 0.65 × K(reduced)
Paras 13 and 20. Capital charge × 12.5 = risk-weighted assets (para 11).
- Discount scalar
- 0.65paras 13, 20
- Correlation between counterparties
- 50%para 14
- Full-version parameter
- 0.25paras 20, 21
- Supervisory discount rate
- 5%paras 15 to 17
- Risk weights, Table 1
- 0.5% to 12.0%para 16
- Multiplier
- 12.5para 11
Stand-alone CVA capital for each counterparty depends on a supervisory risk weight, the effective maturity of each netting set, the exposure at default calculated as under SA-CCR, and the 5% supervisory discount rate (paras 15 to 17). Effective maturity has a floor of one year, with an exception for fully or nearly fully collateralised OTC derivatives with an original maturity under one year and daily re-margining (para 17).
Risk weights come from Table 1 and depend on sector and credit quality: from 0.5 per cent for investment-grade sovereigns to 12.0 per cent for high-yield or unrated financials (para 16). A bank needs an internal policy, approved by the appropriate authority, that maps its sector classification to Table 1 (para 16(d)).
In the full version, the 0.25 parameter limits how far hedge recognition can cut the requirement (paras 20 and 21). Eligible hedges are single-name CDS, single-name contingent CDS and index CDS. Banks are currently not permitted to engage in single-name contingent CDS, so the full version does not recognise them (para 19). Eligible external hedges are excluded from market-risk capital. Ineligible external hedges are capitalised as trading book instruments (para 26).
The calculation relies on counterparty credit risk and SA-CCR rules in the Reserve Bank of India (Commercial Banks – Forthcoming Instructions) Amendment Directions, 2026 (paras 9 and 15). The RBI issued that instrument the same day (RBI/2026-27/284, 7 October 2026) as a notification, also effective 1 April 2027. It applies to commercial banks with an international presence or with derivatives outstanding (book value) of ₹25,000 crore or more on a consolidated group-wide basis; other banks may choose the Current Exposure Method or SA-CCR. This post does not summarise it, but the exposure calculation and the alternative treatment’s CCR base depend on it, so read the two instruments together.
What changed since the draft?
The RBI released the draft on 7 August 2026 and invited feedback until 28 August 2026. Its press release lists four key revisions in the draft: a simpler approach for eligible banks; supervisory risk weights that are more sensitive to sector and credit quality; clearer eligibility and recognition of CVA hedges; and separate systematic and idiosyncratic components in the full BA-CVA. It says feedback was examined and changes were incorporated in the final Directions, with a statement on the feedback received in an annex to the press release. This post does not list the individual changes between draft and final.
What should bank CFOs and risk teams do next?
The steps below are practical advice, not requirements of the Directions:
- Test the ₹10 lakh crore ceiling.Compute group-wide non-centrally cleared notional now and check it against the ceiling; the supervisory override is in the decision flow (para 8).
- Choose the version.Decide between reduced and full BA-CVA, and whether any hedging programme would qualify under paragraphs 18 and 19.
- Build the data.You will need netting sets, effective maturities, issuer ratings and a sector classification policy mapped to Table 1 (paras 16 and 17).
- Prepare disclosures.Frequencies are set in Annex 2 (see the disclosure schedule below).
- Run a dry calculation before April 2027.Estimate the capital effect of replacing para 85(3) of the 2025 Capital Adequacy Directions (para 29).
Effective date and disclosure schedule
The Directions come into effect on 1 April 2027.
The text of the Directions sets no transition period. Pillar 3 disclosure frequencies are set in Annex 2: Table CVAA annual, Templates CVA1 and CVA2 semiannual.
Frequently asked questions
When do the RBI CVA Directions 2026 take effect?
They take effect on 1 April 2027 (para 2). On that date para 85(3) of the Reserve Bank of India (Commercial Banks – Prudential Norms on Capital Adequacy) Directions, 2025 stands repealed (para 29).
Which banks do the CVA Directions apply to?
Commercial banks: banking companies, corresponding new banks and the State Bank of India. Small Finance Banks, Payments Banks and Local Area Banks are excluded (para 3).
Can a bank avoid the BA-CVA calculation?
A bank whose consolidated group-wide notional of non-centrally cleared derivatives is ₹10 lakh crore or less at the reporting date may opt for the alternative treatment. The supervisory authority may not permit this if it finds that CVA risk materially contributes to the bank's overall risk (para 8).
Do banks that use the alternative treatment still make CVA disclosures?
Yes for Table CVAA. Annex 2 says it is mandatory for any bank subject to CVA capital requirements, including one that elected the alternative treatment. Templates CVA1 and CVA2 apply to banks using the reduced or full BA-CVA.
Sources (official, verified 14 October 2026)
- Reserve Bank of India (Commercial Banks – Credit Valuation Adjustment Framework) Directions, 2026, RBI/DOR/2026-27/474, 7 October 2026 (RBI Master Directions page) https://www.rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=13729
- Same Directions, full text (PDF) https://rbidocs.rbi.org.in/rdocs/notification/PDFs/474MD4DC544D5A93B4A8CA3ECBF1AD165EA13.PDF
- Reserve Bank of India (Commercial Banks – Forthcoming Instructions) Amendment Directions, 2026, RBI/2026-27/284, 7 October 2026 (RBI notification) https://www.rbi.org.in/scripts/NotificationUser.aspx?Id=13730&Mode=0
- RBI press release, “RBI issues Directions on ‘Credit Valuation Adjustment (CVA) Framework’”, 7 October 2026 https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=63749
- RBI
- CVA
- Credit valuation adjustment
- BA-CVA
- Capital adequacy
- Pillar 3 disclosures
- India
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