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The RBI recently released draft guidelines for minimum capital requirements for market risk, which will come into effect from April 1, 2024. The rules are meant to bring RBI regulations in line with Basel III standards. They apply to all commercial banks except for local area banks, payments banks, regional rural banks, small finance banks[1], and all types of cooperative banks. Some of the key highlights from the guidelines are:
Table of Contents
After prior RBI and board approval, banks will have the option to depart from the presumptive list. The instrument must be designated in the trading book if this approval is not given.
After the initial designation, banks are not free to move instruments between the trading book and the banking book at will, and they are not allowed to do so for the purpose of regulatory arbitrage.
Banks must continuously satisfy all market risk capital requirements by the end of each business day, and they must also maintain stringent risk management programs to track and manage intraday exposures to market risks.
The RBI’s draft guidelines for minimum capital requirements for market risk aim to ensure that banks maintain adequate capital to withstand market volatility. Banks must adhere to these guidelines and have clear policies and documented practices to determine which instruments can be included in or excluded from the trading book for calculating regulatory capital, taking into account their risk management capabilities and practices.
Comments and feedback invited:
The RBI has sought comments from stakeholders and the public until April 15, 2022, after which the final guidelines, with modifications, will be applicable to all commercial banks. The Reserve Bank of India (RBI) is seeking feedback from stakeholders and the public on draft guidelines, which is a great opportunity for interested parties to provide their input and suggestions. It’s important for banks to ensure they are fully compliant with the final guidelines by April 1, 2024, to avoid any penalties or legal issues. If anyone has any questions or concerns regarding the draft guidelines, they should take advantage of this opportunity to submit their feedback to the RBI.
Also Read:RBI Recent Guidelines on Government Securities MarketMandatory Norms under RBI Regulations on Digital LendingRBI’s Retail Direct Scheme to facilitate investment in G-Secs
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