Prudential Norms for Off-Balance Sheet Exposures of Banks – Restructuring of derivative contracts

Last updated: 07 August 2021

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The Reserve Bank of India (RBI) has issued a clarification regarding the restructuring of derivative contracts for banks. Previously, any change to a derivative contract's parameters was considered a restructuring. However, the RBI now clarifies that a change in the reference rate, specifically due to the transition from LIBOR to an alternative reference rate, will not be treated as a restructuring, provided all other terms of the original contract remain the same.

RBI/2021-22/81
DOR.MRG.39/21.04.157/2021-22

August 06, 2021

All Banks

Madam / Dear Sir,

Prudential Norms for Off-Balance Sheet Exposures of Banks – Restructuring of derivative contracts

Please refer to paragraph 2.2 of our circular DBOD.No.BP.BC.57/21.04.157/2008-09 dated October 13, 2008, in terms of which any change in any of the parameters of the original derivative contract would be treated as a restructuring.

2. In this context, it is clarified that change in the terms of a derivative contract on account of change in reference rate necessitated due to transition from LIBOR to an alternative reference rate shall not be treated as restructuring of the derivative contract provided all other parameters of the original contract remain unchanged.

Yours faithfully,

(Usha Janakiraman)
Chief General Manager

FAQ :

The notification clarifies that changing the reference rate of a derivative contract due to the transition from LIBOR to an alternative rate will not be considered a restructuring, as long as other contract terms stay the same.

Previously, any alteration to any parameter of an original derivative contract was treated as a restructuring.

No, only if the change in reference rate due to LIBOR transition is the sole change and all other parameters of the original contract remain unchanged.

A change in the terms of a derivative contract solely because of a change in the reference rate, necessitated by the transition from LIBOR to an alternative reference rate, is not considered restructuring.

This clarification was issued by the Reserve Bank of India (RBI).

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Notification No : RBI/2021-22/81 DOR.MRG.39/21.04.157/2021-22
Published in Community & General
Source : https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12141&Mode=0

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