The RBI has introduced the Reserve Bank of India (Commercial Banks - Minimum Capital Requirements for Market Risk) Directions, 2026, effective September 21, 2026, to strengthen capital adequacy against trading book exposures.
RBI Introduces New Market Risk Capital Framework for Banks
On September 21, 2026, the Reserve Bank of India issued the Reserve Bank of India (Commercial Banks - Minimum Capital Requirements for Market Risk) Directions, 2026 (RBI/DOR/2026-27/472), introducing a comprehensive framework for capital adequacy against market risk in the trading book. The directions delineate the boundary between banking and trading books, define scope, and prescribe minimum capital requirements based on value-at-risk (VaR) and stressed VaR models.
The framework aligns with Basel III standards and aims to enhance resilience against interest rate, equity, and foreign exchange volatility. Key chapters address permissible reclassification of instruments between books, restrictions on frequent reclassification, and supervisory review processes. The RBI mandates daily risk measurement, independent validation, and board-level oversight of market risk exposure.
Legal practitioners advising commercial banks must ensure compliance with internal governance, reporting, and capital planning obligations. The new norms will affect risk management structures, product structuring, and treasury operations. Institutions are expected to implement the framework in phases, with full compliance required within a specified timeline.
Citations
- Reserve Bank of India (Commercial Banks - Minimum Capital Requirements for Market Risk) Directions, 2026, RBI/DOR/2026-27/472