Commercial banks will have until April 1, 2027, to implement the Reserve Bank of India’s (RBI) revised capital requirements for market risk. The new framework is intended to bring India’s banking regulations in line with the updated Basel III standards while keeping the implementation process practical and flexible for banks.
The RBI issued the Reserve Bank of India (Commercial Banks – Minimum Capital Requirements for Market Risk) Directions, 2026 on Monday. The final rules were released after the central bank reviewed feedback received on the draft framework published in February 2023.
New Market Risk Rules to Take Effect From April 2027
The revised directions form part of the RBI’s broader efforts to adopt the updated Basel standards for the Indian banking sector. The central bank said the framework has been designed to provide banks with greater flexibility while simplifying the process of adopting the revised requirements.
The new directions will become effective from April 1, 2027, giving banks time to make the necessary changes to their systems and processes. Intermediate transition scalars have already been applicable since April 1, 2024, as part of the transition towards the revised framework.
Changes to Trading Book and Interest Rate Risk
One of the changes in the final framework is the removal of separate instructions defining the trading book. The RBI noted that its Investment Directions already provide a clearly identifiable trading book through the Held for Trading (HFT) accounting classification. The new directions therefore refer banks to the relevant provisions under those Investment Directions.
The framework also incorporates updated provisions covering Net Open Position and foreign exchange risk capital requirements. These changes are based on the RBI’s Commercial Banks – Prudential Norms on Capital Adequacy Tenth Amendment Directions, 2026.
For interest rate risk, the RBI has revised the specific risk tables to bring them in line with guidelines issued by the Basel Committee on Banking Supervision (BCBS). According to the central bank, the revised approach provides a more concise framework for calculating the applicable capital requirements.
Revised Treatment for Mutual Funds and Credit Derivatives
The capital treatment for debt mutual funds and exchange-traded funds held in the trading book has also been changed. Under the revised approach, capital requirements will be calculated using the underlying risk drivers, while appropriate safeguards will continue to apply.
The RBI has further updated the treatment of positions hedged through credit derivatives. The revised provisions cover positions hedged through total return swaps where such instruments are permitted under the RBI’s Credit Derivatives Directions, 2026.
The final framework follows the draft directions issued in February 2023. That proposal had outlined the adoption of the Simplified Standardised Approach (SSA) for determining market risk capital requirements under the revised Basel III framework.
Disclaimer: This article is intended for general informational purposes only. Regulatory requirements and banking guidelines may be updated or amended by the RBI from time to time. Banks, financial institutions and other stakeholders should refer to the latest official RBI directions for applicable requirements and implementation details. This article should not be considered financial, legal or regulatory advice.