Reserve Bank of India has announced final guidelines on capital requirements for market risk under Basel III. These rules will be effective from April 1, 2027. Banks must adopt the Simplified Standardised Approach for calculating risk weighted assets. The framework applies to all commercial banks except small finance, payments and local area banks.
The new rules clearly define the boundary between trading and banking books. All instruments held for trading will be part of the trading book. Banks cannot shift instruments between books to reduce capital charges. Capital must be maintained daily across exposures in interest rate, equity and foreign exchange.
Debt mutual funds and exchange traded funds will be treated according to their underlying risk drivers. Certain structural foreign exchange positions may be excluded from net open position calculations under conditions. Interest rate risk tables have been updated in line with Basel Committee guidelines. Credit derivatives hedged by total return swaps are now included in capital treatment.
The norms aim to prevent regulatory arbitrage and strengthen risk management. Banks will face higher compliance costs due to stricter monitoring and classification rules. However the simplified approach is expected to make adoption easier while ensuring discipline. The transition period until 2027 gives banks time to adjust systems and processes.
