Executive Summary:
This circular from the Reserve Bank of India (RBI) addresses amendments to prudential guidelines following the Bilateral Netting of Qualified Financial Contracts Act, 2020. It notifies derivatives and repo/reverse repo transactions as Qualified Financial Contracts (QFCs) and modifies instructions in several existing master directions and circulars. The revised instructions are effective immediately and apply to various financial institutions.
Key Points / Main Content:
* **Legislative Context:**
* The Bilateral Netting of Qualified Financial Contracts Act, 2020, provides a legal framework for the enforceability of bilateral netting of QFCs.
* **Notification of QFCs:**
* RBI has notified derivatives and repo/reverse repo transactions as QFCs under Section 4A of the Act.
* **Amendments to Existing Directions/Circulars:**
* Modifications/amendments have been made to the following:
* Master Direction for Standalone Primary Dealers.
* Master Circular on Prudential Norms on Capital Adequacy for UCBs.
* Circular on Risk Weights for calculation of CRAR.
* Master Direction on Prudential Norms on Capital Adequacy for Local Area Banks.
* Master Circular on Application of Capital Adequacy Norms to Regional Rural Banks.
* Master Direction for Systemically Important Non-Deposit taking NBFCs and Deposit taking NBFCs.
* Master Direction for Housing Finance Companies.
* **Applicability:**
* The circular applies to Standalone Primary Dealers, Primary Urban Cooperative Banks, State and District Central Cooperative Banks, Local Area Banks, Regional Rural Banks, Systemically Important Non-Deposit taking Non-Banking Financial Companies (NBFC-ND-SIs), Deposit taking Non-Banking Financial Companies (NBFC-Ds), and Housing Finance Companies (HFCs).
Impact Analysis:
Standalone Primary Dealers, Primary Urban Cooperative Banks, State and District Central Cooperative Banks, Local Area Banks, Regional Rural Banks, Systemically Important Non-Deposit taking Non-Banking Financial Companies (NBFC-ND-SIs), Deposit taking Non-Banking Financial Companies (NBFC-Ds), and Housing Finance Companies (HFCs):
* Impact: Required to adhere to the amended prudential guidelines related to bilateral netting of QFCs.
* Action Required: Update internal policies and procedures to reflect the changes outlined in the amended master directions and circulars.
Key Entities Referenced
Reserve Bank of India: The central bank of India, responsible for monetary policy and regulation of the financial system.
Bilateral Netting of Qualified Financial Contracts Act, 2020: An act by the Government of India providing a legal framework for enforceability of bilateral netting of qualified financial contracts (QFC).
Government of India: The governing body of the Republic of India.
Qualified Financial Contracts: Financial contracts that are eligible for bilateral netting under the Bilateral Netting of Qualified Financial Contracts Act, 2020, including derivatives and repo/reverse repo transactions.
Mumbai, Maharashtra: City in India where the Central Office of the Department of Regulation, Reserve Bank of India is located.
Usha Janakiraman: Chief General Manager at Reserve Bank of India.
Standalone Primary Dealers: Financial institutions that act as market makers and underwriters of government securities.
Urban Cooperative Banks: Financial institutions that are cooperative credit societies registered under the Cooperative Societies Act. Includes Primary Urban Cooperative Banks, State and District Central Cooperative Banks.
भारतीय �रज़व� ब�क
_________________________RESERVE BANK OF INDIA ______________________
www.rbi.org.in
RBI/2021-22/189
DOR.CAP.REC.No.97/21.06.201/2021-22 March 31, 2022
Dear Sir/ Madam,
Bilateral Netting of Qualified Financial Contracts - Amendments to Prudential
Guidelines
The Bilateral Netting of Qualified Financial Contracts Act, 2020 (hereafter referred to as “the
Act”), has been notified by the Government of India vide Gazette Notification No. S.O. 3463(E)
dated October 1, 2020. The Act provides a legal framework for enforceability of bilateral netting
of qualified financial contracts (QFC).
2. In exercise of the powers conferred by section 4(a) of the Act, the Reserve Bank, vide
Notification no. FMRD.DIRD.2/14.03.043/2020-21 dated March 9, 2021, has since notified (a)
“derivatives”; and (b) “repo” and “reverse repo” transactions as defined under Section 45(U)
of Chapter III-D of the Reserve Bank of India Act, 1934 as a QFC.
3. Accordingly, select instructions contained in the following circulars/ Directions have been
modified/ amended appropriately:
a) Master Direction DNBR.PD.004/03.10.119/2016-17 dated August 23, 2016 - Master
Direction - Standalone Primary Dealers (Reserve Bank) Directions, 2016 as provided
in Annex 1;
b) Master Circular DCBR.BPD.(PCB). MC.No.10/09.18.201/2015-16 dated July 1, 2015
on Prudential Norms on Capital Adequacy – UCBs as provided in Annex 2;
c) Circular RPCD.RCB.BC.No.37/07.51.012/2014-15 dated October 29, 2014 on Risk
Weights for calculation of CRAR as provided in Annex 3;
d) Master Direction DOR.CAP.REC.No.61/21.01.002/2021-22 dated October 26, 2021-
Prudential Norms on Capital Adequacy for Local Area Banks (Directions), 2021 as
provided in Annex 4;
िविनयमन िवभाग,क��ीय कायार्लय, 12 व� और 13 व� मंिजल, क��ीय कायार्लय भवन, शहीद भगत �संह मागर्,फोटर्,मुंबई-400001
दरू भाष: 022-22601000 फैक्स: 022-22705691 ई-मेल: cgmicdor@rbi.org.in
_____________________________________________________________________________________________________________________________________
Department of Regulation, Central Office, 12th and 13th Floor, Central Office Building, Shahid Bhagat Singh Marg, Fort, Mumbai- 400 001
Tel: 022- 2260 1000 Fax: 022-2270 5691 email: cgmicdor@rbi.org.in
�हदं ी आसान ह ै इसका �योग बढ़ाइएe) Master Circular RPCD.CO.RRB.No.BC.44/05.03.095/2007-08 dated December 28,
2007 on Application of Capital Adequacy Norms to Regional Rural Banks as provided
in Annex 5;
f) Master Direction DNBR.PD.008/03.10.119/2016-17 dated September 01, 2016 - Non-
Banking Financial Company - Systemically Important Non-Deposit taking Company
and Deposit taking Company (Reserve Bank) Directions, 2016 as provided in Annex
6; and
g) Master Direction DOR.FIN.HFC.CC.No.120/03.10.136/2020-21 dated February 17,
2021 - Non-Banking Financial Company – Housing Finance Company (Reserve Bank)
Directions, 2021 as provided in Annex 7.
The Directions mentioned above shall be accordingly updated.
Applicability
4. This circular is applicable to All Standalone Primary Dealers, Primary (Urban) Co-operative
Banks, State and District Central Cooperative Banks, Local Area Banks, Regional Rural
Banks, Systemically Important Non-Deposit taking Non-Banking Financial Companies (NBFC-
ND-SIs) and Deposit taking Non-Banking Financial Companies (NBFC-Ds) and Housing
Finance Companies (HFCs), as mentioned in Annex 1 to 7 respectively.
The revised instructions come into force with immediate effect.
Yours faithfully,
(Usha Janakiraman)
Chief General Manager
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