RBI issues final directions on minimum capital requirements for market risk

Commercial banks will have until April 1, 2027, to implement the Reserve Bank of India’s revised framework for minimum capital requirements for market risk, as the central bank issued its final directions on Monday.

The Reserve Bank of India (Commercial Banks – Minimum Capital Requirements for Market Risk) Directions, 2026 seek to align India’s regulatory framework with the revised Basel III standards while providing banks with flexibility and simplicity in implementation.

The final directions follow feedback received on the draft guidelines issued by the RBI in February 2023.

The new framework will come into effect from April 1, 2027, giving banks time to prepare for the revised requirements. The RBI said intermediate transition scalars have already been applicable since April 1, 2024, to facilitate a smooth transition.

Under the revised framework, the RBI has removed specific instructions defining the trading book, as its Investment Directions already provide an identifiable trading book through the Held for Trading (HFT) accounting sub-classification. The final directions instead refer to the relevant Investment Directions.

The framework also incorporates revised provisions relating to Net Open Position and foreign exchange risk capital charges, in line with the RBI’s Commercial Banks – Prudential Norms on Capital Adequacy Tenth Amendment Directions, 2026.

For interest rate risk, the specific risk tables have been revised to align with guidelines issued by the Basel Committee on Banking Supervision (BCBS). According to the RBI, the revised approach provides a more concise framework for banks.

The capital treatment of debt mutual funds and exchange-traded funds (ETFs) held in the trading book has also been revised. Capital requirements will be calculated based on underlying risk drivers while maintaining appropriate safeguards.

The directions further revise the treatment of positions hedged through credit derivatives. The revised framework includes positions hedged through total return swaps, where permitted under the RBI’s Credit Derivatives Directions, 2026.

The final directions follow the RBI’s February 2023 draft, which proposed the adoption of the Simplified Standardised Approach (SSA) for calculating market risk capital requirements under the revised Basel III framework.

-ANI

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