The Reserve Bank of India (RBI) has released a master direction on minimum capital requirements for operational risk. It directs specified commercial banks to maintain adequate regulatory capital to cover operational risk exposures.
Once implemented, these directions will replace existing approaches for calculating minimum operational risk capital requirements. These include the basic indicator approach, standardised approach, alternative standardised approach and advanced measurement approach.
The directions will apply to all commercial banks with the exception of local area banks, payments banks, regional rural banks and small finance banks. Under the directions, commercial banks are not required to undertake a parallel run with respect to the Basel III Standardised Approach.
The RBI has outlined that banks must provide policies, frameworks and guidelines for managing operational risk, along with the structure and organisation of their operational risk management and control function. Banks must also elaborate on their operational risk measurement system, encompassing the systems and data for estimating their operational risk on capital charges.
