4 days ago
RBI Finalizes Basel III Market Risk Capital Directions
The Reserve Bank of India has made new rules for how banks protect themselves from changes in financial markets.
The rules are part of the Basel III framework.
Banks will use a Simplified Standardised Approach to calculate how much capital they need for market risks.
The rules explain which investments belong in a trading book and which belong in a banking book.
Banks cannot move investments between these books just to reduce their capital requirement.
The rules cover interest rates, shares and foreign currencies, including some exposures involving gold and precious metals.
Banks must calculate and maintain the required market-risk capital continuously.
Some long-term foreign-currency positions may be left out of calculations if the banks meet specific conditions.
The new directions will take effect on April 1, 2027.
The Reserve Bank of India issued final Basel III directions on minimum capital requirements for banks’ market risk on September 21.
The rules introduce a Simplified Standardised Approach for calculating market-risk-weighted assets.
They define the trading book as including instruments classified as Held for Trading and restrict reclassification to reduce capital requirements.
The framework covers interest-rate, equity and foreign-exchange risks, including certain foreign-exchange exposures involving gold and precious metals.
The directions permit conditional exclusions for some structural foreign-currency positions and take effect on April 1, 2027.
- Who
- The Reserve Bank of India and commercial banks.
- What
- The RBI issued final directions establishing minimum capital requirements for market risk under Basel III.
- Where
- They apply to banks operating under the RBI’s regulatory framework, at both standalone and consolidated levels.
- When
- The directions were issued on September 21 and will take effect on April 1, 2027.
- Why
- To align market-risk rules with the revised Basel III framework while supporting simpler regulations and easier adoption.
Key facts
- Issuing authority
- Reserve Bank of India (RBI)
- Regulatory framework
- Basel III
- Calculation method
- Simplified Standardised Approach (SSA)
- Risk classes
- Interest-rate risk, equity risk and foreign-exchange risk
- Trading book
- Includes instruments classified as Held for Trading (HFT)
- Capital maintenance
- Required market-risk capital must be maintained continuously, including at the close of each business day.
- Effective date
- April 1, 2027
- Structural foreign-currency exclusion
- Certain positions may be excluded from Net Open Position calculations subject to conditions, including at least six months of maintenance and quarterly recalculation.
Sources
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