RBI Asks FIs To Follow CEM

Mumbai, January 28: | Updated: Jan 29 2003, 05:30am hrs
The Reserve Bank of India (RBI) has asked the all-India term lending and refinance institutions to follow current exposure method (CEM), which it said is an accurate method of measuring credit exposure in a derivative product, for determining individual/ group borrower exposures. However, this method which should be adopted from April 1, 2003, has not been made mandatory.

In computation of capital to risk-weighted assets ratio (CRAR), the FIs would be encouraged to adopt CEM as against the earlier prescribed original method (OM), though it is not mandatory, RBI said in a notification to the CEOs of all-India term lending institutions and refinance companies.

Under CEM, credit risk exposure/ credit equivalent amount of the derivative products is computed periodically on the basis of the market value of the product to arrive at its current replacement cost.