The Reserve Bank of India has issued the final directions on minimum capital requirements for market risk under the revised Basel III framework, with significant changes in various aspects such as trading book scope, net open position, specific risk capital charge, and more.
On February 17, 2023, the Reserve Bank of India (RBI) issued Draft Guidelines on Minimum Capital Requirements for Market Risk under Basel III, seeking stakeholder feedback. After examining the received feedback, modifications have been incorporated in the final Directions, titled 'Reserve Bank of India (Commercial Banks – Minimum Capital Requirements for Market Risk) Directions, 2026'.
The major changes in the final Directions vis-à-vis the draft guidelines include revisions to the scope of the trading book. Since the Investment Directions 1 provide a clearly identifiable trading book under ‘Held for Trading (HFT)’ accounting sub-classification, the instructions on the definition of the trading book have been deleted from the final Directions, and a reference has been made to the Investment Directions.
Another significant change is in the net open position and forex risk capital charge. Revised instructions as provided in the Reserve Bank of India (Commercial Banks – Prudential Norms on Capital Adequacy) Tenth Amendment Directions, 2026 have been suitably incorporated.
The specific risk capital charge for interest rate risk has also been revised to align with the Basel Committee on Banking Supervision (BCBS) guidelines. This change provides a more concise and clean treatment.
Furthermore, the capital treatment for debt mutual funds/exchange traded funds (ETF) held in the trading book has been revised to ensure capital computation is based on the underlying risk drivers while ensuring sufficient guardrails.
Lastly, the instructions have been revised to include the treatment for positions hedged by total return swaps, permitted in terms of Master Direction – Reserve Bank of India (Credit Derivatives) Directions, 2026. These directives will take effect from April 1, 2027, ensuring sufficient lead time for banks.
Source:
Reserve Bank of India
