The Reserve Bank of India has released the Reserve Bank of India (Commercial Banks – Credit Valuation Adjustment Framework) Directions, 2026, and invited comments from regulated entities, market participants and other interested parties.
The press release was issued on August 7, 2026. Feedback on the draft Directions can be submitted till August 28, 2026.
What the CVA framework covers
Credit Valuation Adjustment, or CVA, is an adjustment made to the default risk-free prices of derivatives to account for the possibility that a counterparty may default. CVA risk refers to losses that can arise when CVA values change because of movements in counterparty credit spreads and market risk factors.
The CVA capital charge is intended to ensure that banks hold capital against these risks. The current framework in India was issued by the Reserve Bank in 2011 and was based on Basel Committee on Banking Supervision standards issued in 2010.
The Basel Committee has since issued revised CVA guidelines under the final Basel III framework. The RBI’s latest release follows those changes and sets out revised instructions for banks in India.
Basic approach permitted for banks
Under the revised instructions, banks in India may adopt the basic approach for CVA, known as BA-CVA. Banks may choose either the full version or the reduced version of this approach.
The RBI has also said that, in line with Basel Committee guidelines, banks with an insignificant volume of non-centrally cleared derivatives may calculate their CVA capital charge as 100 per cent of their counterparty credit risk capital charge. Counterparty credit risk is referred to as CCR in the RBI release.
This gives eligible banks a simpler method for calculating the capital requirement where their exposure to such derivatives is limited.
Main changes in the revised instructions
The RBI said the revised instructions make changes in four main areas. They allow eligible banks to choose a simpler approach, clarify the eligibility and recognition of CVA hedges, and increase the sensitivity of supervisory risk weights for counterparties by sector and credit quality.
The full BA-CVA calculation also separates systematic and idiosyncratic CVA risk components. According to the RBI, this addresses imperfect alignment of indirect CVA hedges.
The Reserve Bank said these revisions are intended to enhance risk sensitivity and improve consistency in the CVA framework.
How comments can be submitted
Comments and feedback on the draft Directions are open till August 28, 2026.
The RBI said feedback may be submitted through the link under the “Connect 2 Regulate” section on its website. It may also be sent to the Chief General Manager, Market Risk Group, Department of Regulation, Central Office, Reserve Bank of India, 12th Floor, Shahid Bhagat Singh Marg, Fort, Mumbai – 400 001.
Feedback may also be sent by email with the subject line “Feedback on Credit Valuation Adjustment (CVA) Framework”.
The press release was issued by Brij Raj, Chief General Manager, under press release number 2026-2027/836.
Source: Reserve Bank of India Press Releases.