The Reserve Bank of India has set a ₹25,000 crore threshold for banks that will be required to adopt the Standardised Approach for Counterparty Credit Risk, or SA-CCR, as part of revised rules for measuring risks from derivatives and related transactions. The new framework will take effect from April 1, 2027, bringing India’s counterparty-risk calculations closer to international Basel standards.
The rule will apply to commercial banks with an international presence or those with derivative outstanding of at least ₹25,000 crore on a consolidated group-wide basis. Banks below the threshold can choose whether to continue using the existing Current Exposure Method, or CEM, or move to SA-CCR. The RBI said the quantitative threshold was introduced after stakeholder feedback from banks seeking proportionality for lenders with relatively small derivative books. Moneycontrol
Key takeaways
- The RBI has finalised revised rules for counterparty credit risk.
- SA-CCR becomes mandatory for banks with an international presence or derivative outstanding of ₹25,000 crore or more.
- The threshold is measured on a consolidated group-wide basis.
- Smaller commercial banks can choose between CEM and SA-CCR.
- The new framework starts on April 1, 2027.
- The RBI rejected requests to postpone implementation to April 2028, saying the date is aligned with the Basel III implementation timeline. Moneycontrol
- SA-CCR will be used not only for capital calculations but also for other regulatory purposes, including the Large Exposures Framework, CRILC reporting and intra-group exposure limits.
- The RBI has also clarified the treatment of sold options, legal opinions supporting netting arrangements and cross-product netting.
- The changes are designed to improve consistency in measuring derivative counterparty exposures while avoiding unnecessary compliance costs for banks with smaller derivative businesses.
What is counterparty credit risk?
Counterparty credit risk is the possibility that the other party in a financial contract will default before the transaction is fully settled.
It is particularly important in derivatives.
A derivative is a financial contract whose value is linked to an underlying asset, interest rate, currency, commodity, security or other variable.
Banks use derivatives extensively for activities such as:
- Hedging interest-rate risk
- Managing foreign-exchange exposure
- Managing commodity exposure
- Providing derivatives to corporate customers
- Trading and market-making
- Managing their own balance sheets
The risk is different from an ordinary loan.
With a loan, the bank generally knows the amount it has lent.
With a derivative, the amount the bank could lose if a counterparty defaults can change as market prices move.
A derivative that has little exposure today could become significantly more valuable tomorrow.
That makes the calculation of potential exposure particularly important.
Why the RBI is changing the calculation method
The RBI currently allows the Current Exposure Method, or CEM, for calculating counterparty credit exposure.
The new SA-CCR framework is intended to provide a more risk-sensitive approach.
Instead of relying primarily on relatively simple exposure calculations, SA-CCR considers factors such as the underlying asset class, maturity, collateral and potential future exposure.
The objective is to estimate the amount of exposure that could arise if market conditions move against a bank and its counterparty subsequently defaults.
The change is part of India’s broader implementation of Basel III standards.
The RBI has now finalised the framework after receiving feedback from banks and other stakeholders. Moneycontrol
Who must use SA-CCR?
The new framework does not apply identically to every commercial bank.
The RBI has created a threshold.
| Bank category | Treatment from April 1, 2027 |
|---|---|
| Banks with international presence | SA-CCR mandatory |
| Banks with derivative outstanding ≥ ₹25,000 crore | SA-CCR mandatory |
| Other commercial banks | CEM or SA-CCR |
| Small finance banks | Outside the specified commercial-bank framework |
| Payments banks | Outside the specified commercial-bank framework |
| Local area banks | Outside the specified commercial-bank framework |
The ₹25,000 crore threshold is based on the bank’s derivative outstanding on a consolidated group-wide basis. Rediff Money
This creates a proportional approach.
A bank with a relatively small derivatives operation does not automatically have to undertake the same implementation burden as a large lender with a significant derivatives business.
Why the ₹25,000 crore threshold matters
The threshold was one of the most important changes following industry feedback.
Banks had asked the RBI for a quantitative limit below which they could continue using the simpler CEM approach.
The RBI accepted the suggestion.
That means the new framework is not a blanket requirement for every bank.
Instead, the central bank is effectively saying that banks with a sufficiently large or internationally significant derivatives operation need to adopt the more sophisticated methodology, while other banks retain flexibility. Moneycontrol
This distinction matters because implementing a new regulatory capital methodology can involve significant changes to:
- Risk-management systems
- Data infrastructure
- Model governance
- Reporting
- Internal controls
- Capital calculations
- Staff training
- Regulatory reporting
For a bank with a small derivatives portfolio, those costs could be disproportionate to the risk being measured.
CEM versus SA-CCR
The simplest way to understand the change is to compare the two approaches.
Current Exposure Method
CEM is the existing approach used by banks to calculate counterparty exposure.
It uses the current replacement cost of a derivative together with an additional amount representing potential future exposure.
Standardised Approach for Counterparty Credit Risk
SA-CCR is a more risk-sensitive standardised framework developed under the Basel regulatory architecture.
It uses a more detailed calculation of exposure based on the characteristics of derivatives, including factors such as asset class and maturity.
The intention is to better capture how exposure can change as market conditions move.
The RBI’s decision therefore represents more than a change in terminology.
It changes the way certain banks calculate exposures that ultimately feed into their regulatory risk and capital frameworks.
SA-CCR will affect more than capital calculations
One of the most important features of the final directions is that SA-CCR exposure calculations will not be confined to determining capital requirements.
The RBI has specified that applicable banks must use the SA-CCR methodology consistently for other regulatory purposes as well.
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