CRM for offsetting – non-centrally cleared derivative transactions of foreign bank branches in India with their Head Office

Last updated: 13 September 2021

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The Reserve Bank of India (RBI) has updated guidelines for foreign bank branches in India regarding the Large Exposures Framework (LEF). Branches can now use interest-free funds from their Head Office or retained surplus as Credit Risk Mitigation (CRM) to offset exposures to their Head Office for LEF calculations. This is subject to several conditions, including auditor certification and not being counted as regulatory capital. The RBI has also allowed foreign banks to exclude certain derivative contracts executed before April 1, 2019, from their exposure calculations.

RBI/2021-22/97 DOR.CRE.REC.47/21.01.003/2021-22 September 09, 2021 All Scheduled Commercial Banks (Excluding Regional Rural Banks) Dear Sir/Madam, Large Exposures Framework Credit Risk Mitigation (CRM) for offsetting non-centrally cleared derivative transactions of foreign bank branches in India with their Head Office Please refer tocircular No.DBR.No.BP.BC.43/21.01.003/2018-19 dated June 03, 2019on Large Exposures Framework (LEF). 2. It is advised that the Indian branches

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FAQ :

The notification allows Indian branches of foreign banks to use specific funds held with the RBI as Credit Risk Mitigation (CRM) to offset their gross exposure to their Head Office for the calculation of the Large Exposures Framework (LEF) limit.

Interest-free funds from the Head Office or remittable surplus retained in Indian books (reserves) held with the RBI under Section 11(2)(b)(i) of the Banking Regulation Act, 1949, can be used as CRM.

Yes, the funds must be over and above other regulatory requirements, certified by statutory auditors, and not included in regulatory capital. An annual undertaking to the RBI is also required.

No, the funds designated as CRM cannot be counted as regulatory capital to avoid double counting.

Yes, foreign banks are permitted to exclude derivative contracts executed prior to April 1, 2019, when computing derivative exposures to their Head Office.

Notification No : RBI/2021-22/97 DOR.CRE.REC.47/21.01.003/2021-22
Source : https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12160&Mode=0

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