RBI introduces new market-risk rules, letting banks omit certain FX exposures from NOP

The Reserve Bank of India announced a new market-risk capital framework that will take effect on April 1, 2027. Under the rules, banks may no longer move instruments between trading and banking books with the intent of reducing capital charges; any reclassification that lowers capital requirements will trigger a mandatory surcharge. The RBI also allows banks to exclude particular structural foreign-exchange positions—such as capital investments in overseas subsidiaries, joint ventures, IFSC Banking Units and Offshore Banking Units in SEZs—from their net open position, as long as the exclusion offsets currency-rate sensitivity and is maintained for at least six months.

The framework revises capital treatment for debt mutual funds and ETFs, treating funds with at least 90% debt assets based on the underlying securities, while others are treated like equity. A 9% charge applies to contributions to the Corporate Debt Market Development Fund, and a 12% specific-risk charge is imposed on certain non-equity capital instruments regardless of credit rating. The overall changes aim to align Indian regulations with the revised Basel III standards while simplifying compliance.