The Reserve Bank of India has amended its capital adequacy directions for commercial banks to replace the methodology for calculating Net Open Position and the capital charge for foreign exchange risk. The changes are intended to align the framework more closely with international standards and to support consistent implementation across banks. The amended rules take effect on April 1, 2027. Under the revised framework, banks must calculate Net Open Position and maintain foreign exchange risk capital at both group or consolidated level and solo or standalone level, on a continuous basis at the close of each business day. The rules exclude positions deducted from regulatory capital, including related hedges, certain capital instrument holdings and intangible assets that are deducted from capital, and matured unpaid or non-performing securities that will attract only credit risk capital. Banks may also exclude specified structural foreign currency positions, including capital investments and accumulated or unremitted surplus in overseas subsidiaries, branches, IFSC Banking Units and Offshore Banking Units, but only within defined limits and subject to conditions on consistency, minimum holding period, internal policy, documentation and supervisory review. The maximum structural exemption must be recalculated quarterly using the Common Equity Tier 1 ratio on a quarter-end basis. The amendment also sets out a fuller calculation method for Net Open Position. It requires banks to include all foreign currency positions, including gold, across both the trading book and banking book, and confirms that separate onshore and offshore Net Open Positions are not required. Overall foreign exchange risk is to be measured under a shorthand method that aggregates the larger of total net long or net short currency positions and adds the net gold position, with a capital requirement of 9 per cent of that overall Net Open Position, in addition to capital charges for credit risk, interest rate risk and other relevant risks.
Reserve Bank of India2026-06-24
Reserve Bank of India revises foreign exchange risk capital rules for commercial banks from April 2027
The Reserve Bank of India has revised the foreign exchange risk capital framework for commercial banks, replacing the method for calculating Net Open Position and the related capital charge with effect from April 1, 2027. Banks must apply the requirement daily at both consolidated and standalone level, and may exclude certain structural foreign currency positions only under defined conditions. The capital charge remains 9 per cent of the overall Net Open Position calculated under the revised shorthand method.