Banking · Capital Adequacy & Risk Exposure
Under the 2026 Revised Directions, which of the following best explains the regulatory logic and capital adequacy treatment for Irrevocable Payment Commitments (IPCs) issued by banks to stock exchange clearing corporations?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1Capital is allocated specifically against the portion of the IPC that qualifies as Capital Market Exposure (CME), which attracts a 125% risk weight.✓
- 2To ensure systemic stability, banks must allocate capital against the entire sanctioned limit of the IPC at a 100% risk weight, regardless of whether the transaction is classified as Capital Market Exposure.
- 3Since IPCs are exclusively permitted for fully pre-funded transactions, they are categorized as low-risk assets and carry a standard 20% risk weight without impacting Capital Market Exposure ceilings.
- 4Banks are required to maintain regulatory capital against the total nominal commitment amount of the IPC, which is treated as a performance guarantee with a 50% Credit Conversion Factor (CCF).
Correct answer
Capital is allocated specifically against the portion of the IPC that qualifies as Capital Market Exposure (CME), which attracts a 125% risk weight.
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