New capital adequacy norms require commercial banks to maintain minimum capital for market risk exposures under revised RBI directions.
RBI Issues Market Risk Capital Requirements for Commercial Banks
The Reserve Bank of India has issued the Reserve Bank of India (Commercial Banks - Minimum Capital Requirements for Market Risk) Directions, 2026, establishing a comprehensive framework for measuring and capitalising market risk. The guidelines define the boundary between banking and trading books and set capital charges for interest rate and equity risks.
Chapter II of the directions outlines strict criteria for classifying instruments in the trading book, limits on reclassification, and requires daily value-at-risk (VaR) computations. The framework aligns with Basel III standards, mandating enhanced disclosures and internal model validation for large banks.
This marks a significant step in strengthening India’s risk-based supervision. Legal and compliance teams must ensure banks implement robust internal controls, governance frameworks, and audit trails to meet the new requirements. Non-compliance could attract regulatory penalties and supervisory action.
Citations
- RBI (Commercial Banks - Minimum Capital Requirements for Market Risk) Directions, 2026
