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Informist, Monday, Sept. 21, 2026

 

MUMBAI – The Reserve Bank of India Monday issued final directions on minimum capital requirements for market risk for commercial banks, aligning the framework with the revised Basel III standards and introducing revised rules for trading book, foreign exchange, and interest rate risks. The directions will come into effect from Apr. 1.

 

The directions, which follow draft guidelines issued in February 2023, require banks to use the simplified standardised approach to calculate risk-weighted assets for market risk. Under the framework, market risk capital requirements will cover interest rate, equity, and foreign exchange risks, with the capital charge calculated separately for the three risk classes.

 

The new norms apply to commercial banks, excluding small finance banks, payments banks, and local area banks. Banks will have to maintain market risk capital requirements on a continuous basis, at the close of each business day, at both standalone and consolidated levels. 

 

On the trading book, the RBI has aligned the definition with its 2025 investment portfolio directions, under which instruments classified as "held for trading" will form the trading book. Other instruments will generally remain in the banking book and attract the applicable credit or counterparty credit risk capital requirements instead of market risk capital. Banks have also been prohibited from reclassifying instruments between the banking and trading books for regulatory arbitrage. 

 

For foreign exchange risk, banks will be allowed to exclude certain structural, non-dealing foreign currency positions from their net open position calculation. These can include capital investments and accumulated or unremitted surplus in overseas subsidiaries, joint ventures, associates and branches, as well as Gujarat International Finance Tec-City-International Financial Services Centre and offshore banking units.

 

The RBI has also revised the treatment of debt mutual funds and equity-traded funds held in the trading book. Funds investing at least 90% of their assets in debt instruments, with required constituent-level information and daily net asset value availability, will be subject to capital requirements based on their underlying debt exposures. Funds that do not meet these conditions, including those with less than 90% of assets in debt instruments, will be treated on a par with equity for market-risk capital computation. 

 

The final directions further update capital treatment for positions hedged through credit derivatives, including total return swaps permitted under the RBI's 2026 Credit Derivatives Directions. 

 

The RBI said the final framework incorporates stakeholder feedback received on the 2023 draft and is intended to align India's market-risk capital framework with revised Basel III standards while retaining simplicity and providing banks flexibility in adoption.  End

 

Reported by Kabir Sharma

Edited by Himanshi Gupta

 

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