RBI gives banks till April 2027 for revised market risk framework

RBI has set an April 1, 2027 deadline for commercial banks to adopt its revised framework for minimum capital requirements for market risk. The new directions aim to align Indian regulations with the revised Basel III standards.

Commercial banks will have until April 1, 2027, to adopt the Reserve Bank of India's revised framework for minimum capital requirements for market risk, with the central bank issuing final directions aimed at aligning Indian regulations with the revised Basel III standards while retaining simplicity and flexibility in implementation.

The RBI on Monday issued the Reserve Bank of India (Commercial Banks - Minimum Capital Requirements for Market Risk) Directions, 2026, after examining feedback received on draft guidelines issued in February 2023.

The final framework is aimed at aligning market risk guidelines with the revised Basel III framework as part of RBI's adoption of Basel standards. The central bank said the directions would also provide banks with flexibility and ease of adoption. The new directions will come into effect from April 1, 2027, giving banks sufficient time to prepare for the revised requirements. Intermediate transition scalars have already been in effect since April 1, 2024, to facilitate a smooth transition.

Key Revisions in the Final Framework

Among the key changes, the RBI has removed instructions defining the trading book from the final directions, as the Investment Directions already provide a clearly identifiable trading book under the Held for Trading (HFT) accounting sub-classification. The final rules instead make a reference to the relevant Investment Directions.

The directions also incorporate revised instructions on Net Open Position and forex risk capital charges, as provided under 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). The RBI said the revised treatment provides a more concise framework.

The capital treatment for debt mutual funds and exchange-traded funds held in the trading book has also been revised, with capital computation to be based on underlying risk drivers while maintaining adequate safeguards.

Further, the rules for positions hedged through credit derivatives have been revised to include 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 had proposed adopting the Simplified Standardised Approach (SSA) for calculating market risk capital requirements under the revised Basel III framework. (ANI)

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