RBI May Ask Banks to Set Aside Additional Capital
Draft norms suggest a 9% capital requirement on banks’ net open positions in foreign exchange and bullion to curb volatility risks.
Mumbai, Jan 16 : The Reserve Bank of India (RBI) has proposed tighter capital norms for banks to limit their exposure to volatility in foreign exchange and bullion markets, according to draft regulations released for public consultation.
Under the draft framework, commercial banks will be required to maintain a capital charge of 9 per cent on their net open positions in foreign exchange and gold, effective April 1, 2027. The central bank said the proposal aims to align India’s banking regulations with global standards while discouraging excessive risk-taking in currency and bullion markets.
The draft introduces a flat “safety buffer,” requiring banks to hold capital equal to 9 per cent of their overall net open position. This requirement will be in addition to existing capital charges for credit risk and interest rate risk associated with these assets. RBI said the move consolidates the methodology for measuring such risks within the capital adequacy framework, replacing norms that were earlier scattered across multiple regulatory directions.
While the proposed norms are expected to strengthen balance sheet resilience, they could marginally increase costs related to lending, hedging and remittance services for businesses.
To standardise risk measurement, RBI has prescribed a simplified “shorthand method” for calculating open positions. Banks will be required to compute net long and net short positions for each currency, with the total open position defined as the higher of the absolute net long or net short positions across all currencies, plus the net position in gold.
For instance, if a bank has a net long currency position of ₹300 crore and a net gold position of ₹35 crore, the total exposure would be ₹335 crore, requiring capital of about ₹30.2 crore at the proposed 9 per cent charge.
The draft also proposes treating gold exposures in the same manner as foreign currency positions. A bank’s net gold position, whether in spot or forward contracts, will be added to its foreign exchange exposure when calculating total risk. RBI said banks must therefore hold capital against gold holdings with the same rigour applied to volatile foreign currencies such as the dollar and euro.
