The Reserve Bank of India has introduced a comprehensive update to capital requirements for commercial banks, aligning more closely with Basel III standards and set to be implemented from April 2027, including new rules on trading book treatment, foreign exchange risk, and debt mutual funds.
The Reserve Bank of India has put the finishing touches on a long-awaited overhaul of the way commercial banks calculate capital for market risk, setting the new framework to take effect from 1 April 2027.
In final directions issued after reviewing feedback on draft rules published in February 2023, the central bank said the package updates how banks treat trading-book positions, foreign exchange risk, interest-rate risk, debt mutual funds and exchange-traded funds. The move is intended to bring Indian rules closer to Basel III standards, the global banking rulebook drawn up by the Basel Committee on Banking Supervision.
Among the most notable changes, the RBI has revised the capital treatment for debt mutual funds and ETFs held in the trading book so that capital is calculated using the underlying risk drivers, subject to guardrails. It has also updated specific risk tables for interest-rate risk to match Basel Committee guidance, and folded in newer instructions on net open positions and forex risk capital charges from its 2026 capital adequacy amendments.
The central bank has also changed the treatment of positions hedged through credit derivatives to include total return swaps permitted under its 2026 Credit Derivatives Directions. At the same time, it has removed separate instructions defining the trading book, saying its Investment Directions already identify it under the held-for-trading accounting classification. According to the Economic Times, banks will also be barred from shifting instruments between the trading book and the banking book simply to reduce capital requirements.
The RBI said transition scalars have already been in force since 1 April 2024, giving lenders time to prepare for the full shift in 2027. The new rules are part of a broader regulatory reset that has also included revised risk-weight norms and updated disclosure requirements, signalling a wider push by the central bank to make capital rules more risk-sensitive and more closely aligned with international standards.
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