New RBI Credit Valuation Adjustment Framework for Commercial Banks
Commercial banks must now calculate and hold capital for potential losses from changes in the credit risk of their derivative counterparties.
- Document
- Notifications
- Dated
- 07 Oct 2026
- Effective
- April 1, 2027
- Act by
- April 1, 2027
This page was written by Patron Accounting’s AI from the official release and reviewed before publishing. It explains the document in plain language. It is not the document itself. Where this page and the original differ, the original governs.
The short version
- Banks must calculate capital charges for Credit Valuation Adjustment (CVA) risk.
- New rules apply to all commercial banks except small finance and payments banks.
- Banks can choose between the Basic Approach or an alternative treatment method.
- The framework becomes mandatory for all covered transactions starting April 1, 2027.
In short
This document introduces the Reserve Bank of India (Commercial Banks – Credit Valuation Adjustment Framework) Directions, 2026, which sets new standards for how banks must account for the risk that their trading partners might default.
What has changed
How it worked before
Previously, banks followed the Reserve Bank of India (Commercial Banks - Prudential Norms on Capital Adequacy) Directions, 2025, which included different requirements for capital adequacy.
What has changed
Banks are now required to use specific formulas (the Basic Approach or an alternative) to calculate capital charges for CVA risk, which measures potential losses from changes in counterparty credit spreads.
Who this affects
Commercial banks, excluding Small Finance Banks, Payments Banks, and Local Area Banks.
An example
A large commercial bank holds a portfolio of derivative contracts with various corporate clients. Under the new rules, the bank must calculate the potential loss if these clients' creditworthiness changes. They will use the Basic Approach to determine how much extra capital they need to set aside to cover this specific risk. This ensures the bank remains stable even if market conditions for their counterparties worsen.
What you should do
Banks must implement systems to calculate CVA risk capital charges and update their Pillar 3 disclosure templates to meet the new reporting requirements by the effective date.
Deadline · April 1, 2027If you do nothing
Failure to comply with these directions may lead to regulatory action by the Reserve Bank of India. This could include penalties, increased capital requirements, or formal notices regarding non-compliance with prudential norms.
The terms explained
- Credit Valuation Adjustment (CVA)
- An adjustment to the value of a derivative to account for the risk that the other party might default.
- Covered Transactions
- Derivative contracts that are subject to these new capital calculation rules.
- Counterparty
- The other person or business involved in a financial contract.
- Pillar 3 disclosure
- Public reports that show how much capital a bank holds to cover risks.
The original document
| Issued by | RBI |
|---|---|
| Document | Notifications |
| Full title | Reserve Bank of India (Commercial Banks – Credit Valuation Adjustment Framework) Directions, 2026 |
| Issued on | 07 October 2026 |
| Effective | April 1, 2027 |
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