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Informist, Wednesday, Jan. 14, 2026

 

--RBI invites comments on revised net open position direction draft by Feb 3

 

NEW DELHI – The Reserve Bank of India Wednesday released revised draft directions for the calculation of net open position and the calculation of capital charge on foreign exchange risk. It has invited comments on the new draft by Feb. 3. The revised draft seeks to ensure consistent implementation across regulated entities and better alignment with the Basel Committee on Banking Supervision standards, the regulator said in a release.

 

"The proposed revisions include, inter alia, (a) doing away with the separate calculation of offshore / onshore NOP (wherever applicable); (b) inclusion of accumulated surplus of overseas operations in NOP (wherever applicable); (c) maintenance of forex risk capital charge on the actual NOP; (d) modifying the Shorthand method for calculation of NOP in alignment with Basel guidelines, which treats open position in gold separately; and (e) provision to exempt certain structural forex positions from NOP," the RBI said.

 

The central bank has proposed that the revised directions come into effect from Apr. 1, 2027.

 

Under the draft directions, a commercial bank will have to compute net open position and maintain capital charge for foreign exchange risk at both consolidated level and standalone level. 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 foreign exchange risk capital requirement to any position that is deducted from the bank's regulatory capital, including a position that is hedging 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.

 

"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.

 

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.

 

While excluding currency risk positions, commercial banks must ensure that the risk position shall be taken or maintained for the purpose of hedging partially or fully against the potential that changes in exchange rates could have an adverse effect on its capital ratio. The exclusion must be limited to the amount that neutralises the sensitivity of the capital ratio to movements in exchange rates. The exclusion from the calculation must also be made for at least six months, the RBI said.

 

"A matched currency risk position will protect a bank against loss from movements in exchange rates, but will not necessarily protect its capital adequacy ratio," the central bank said. "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. 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."

 

Currently, a small finance bank is not required to calculate and maintain capital charge for foreign exchange risk. However, a small finance bank which is operating as an Authorised Dealer Category I bank will be required to monitor its net open position, the RBI said.

 

Risk weights on net open position would be applicable only to those regional rural banks which are Authorised Dealers, the RBI said. Other regional rural banks may calculate the risk weights on net open position by considering only the net open position from gold, the central bank added.  End

 

Reported by Aaryan Khanna and Shubham Rana

Edited by Vandana Hingorani

 

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