The Reserve Bank of India (RBI) has published draft guidelines for minimum capital requirements for market risk under the international Basel III framework. The bank has requested comments on the draft guidelines by 15 April.
The RBI is converging its regulations with Basel III standards. The guidelines will impose restrictions on trading and banking books, along with increased penalties and provisioning ratios. The final guidelines will take effect from 1 April 2024.
The proposed guidelines will apply to all commercial banks except local area banks, payments banks, regional rural banks, small finance banks, and all types of co-operative banks.
The draft’s norms differentiate between the banking book and the trading book, and the list instruments that can be included in each. The trading book is subject to market risk capital requirements, while the banking book is subject to credit risk capital requirements.
The capital requirement for both specific risk and general market risk will be 9% each of the core capital of the bank and the exposure to specified instruments. These capital charges will apply to all trading book exposures, which are exempt from capital market exposure ceilings for direct investments.