RBI Proposes Revised Credit Valuation Adjustment Framework for Banks

Banks sometimes make special deals called derivatives with each other.

There is always a small chance that the other bank cannot pay back, and this is called counterparty risk.

Credit Valuation Adjustment, or CVA, is a way banks adjust their prices to account for that risk.

The Reserve Bank of India, which is India's central bank, makes the rules for how banks handle this.

The old rules were made in 2011 and were based on older international standards.

International banking experts later updated their guidelines under the Basel III framework.

So the RBI has now proposed new draft rules to make its framework more consistent and sensitive to risk.

The new rules let banks in India choose a simpler approach called BA-CVA, and give an even easier option to banks that do very little of this trading.

The RBI wants people and banks to share their opinions on the new draft rules until August 28, 2026.