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Informist, Wednesday, Jun. 24, 2026

 

--RBI issues revised norms for banks to compute net open position 

--RBI: Revised norms for banks to compute net open position effective Apr 1 

--RBI: Revised net open position norms to ensure Basel standards alignment 

 

NEW DELHI – The Reserve Bank of India Wednesday issued revised norms for calculating net open position of banks, effective from Apr. 1. The revised norms seek to ensure consistent implementation and better alignment of Basel Committee on Banking Supervision standards across regulated entities, the RBI said in a release.

 

Under the revised directions, a bank will have to compute net open position and maintain a capital charge for foreign exchange risk at both the consolidated and standalone levels. A commercial bank will also be required to meet capital requirements for foreign exchange risk on a continuous basis, meaning at the close of each business day, the RBI said. 

 

Commercial banks will not have to apply the foreign exchange risk capital requirement to any position that is deducted from the bank's regulatory capital, including a position that hedges such a position, the RBI said. Holdings of capital instruments that are deducted from a commercial bank's capital or risk weighted at 1,250% are not required to be included in the forex risk capital requirements, the RBI said.

 

This includes the bank's own eligible regulatory capital instruments and other banks' and other financial entities' eligible regulatory capital instruments, as well as intangible assets deducted from capital.

 

"A bank shall not apply forex risk capital requirements to securities which are (i) already matured and remain unpaid; or (ii) have been classified as a non-performing asset/investment. Such securities shall attract capital only for credit risk," the RBI said.

 

Further, the RBI said that a bank will have the option to exclude certain structural foreign currency investments from the calculation of net open position on both a standalone and a consolidated basis. The forex risk positions eligible for exclusion shall be structural and non-dealing in nature, such as positions arising from investments in consolidated subsidiaries or branches denominated in foreign currencies, it added.

 

Under the revised norms, the central bank said that a matched currency risk position will protect a bank against losses from exchange-rate movements, but will not necessarily protect its capital adequacy ratio. "If a bank has its capital denominated in its domestic currency and has a portfolio of foreign currency assets and liabilities that is completely matched, its capital asset ratio will fall if the domestic currency depreciates," it said. "By running a short risk position in the domestic currency, the bank can protect its capital adequacy ratio, although it would result in a loss in the event of appreciation of the domestic currency."

 

To measure the capital requirement for foreign exchange risk, a bank must include all positions in foreign currencies, including gold, at both the consolidated and standalone levels, regardless of whether they are in the trading book or banking book, the RBI said. 

 

Further, the RBI said banks' exposure to a single currency needs to be calculated by adding the net spot position, net forward position, guarantees, net future income or expenses not yet accrued but where the amounts are certain and have been fully hedged by the bank, and the net delta-based equivalent of the total book of foreign currency options. Any other item representing a profit or loss in foreign currencies should also be added, it said. 

 

The central bank said that under its revised norms, all open positions from onshore and offshore operations are captured in the calculation of net open position. Hence, a bank is not required to separately calculate onshore and offshore net open positions. "Positions from offshore operations include structural forex positions (after applying the structural exemption provision) and other items contributing to Net Open Position not captured in the structural forex position," it said. 

 

Further, banks are required to include all capital investments in overseas operations and the accumulated and unremitted surplus of overseas operations in the net spot position for the calculation of the net open position. For this purpose, overseas operations of a bank shall include overseas branches, International Financial Services Centres Banking Units and Offshore Banking Units in Special Economic Zones, as well as overseas subsidiaries, associates and joint ventures.

 

Transactions undertaken by a bank until the end of the business day must be included in the calculation of the net open position. Transactions undertaken after the end of the business day may be taken into positions for the next day. For this purpose, a bank can define its own end-of-business-day timings, but this needs to be determined as per a duly approved internal policy and followed consistently, it said.

 

The capital requirement for foreign exchange positions, including gold, shall be 9% of the overall net open position computed using the shorthand method. This capital requirement is in addition to the capital requirement for credit risk, interest rate risk, or any other risks on on-balance-sheet and off-balance-sheet items pertaining to foreign exchange and gold transactions. End

 

Reported by Pratiksha

Edited by Saji George Titus

 

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