The Reserve Bank of India has released preliminary guidelines outlining the minimum capital requirements for market risk, as part of its efforts to align banking regulations with the standards set forth by Basel III. The central bank has invited comments on the proposed regulations until April 15, 2023, with the final rules slated to take effect on April 1, 2024.
Under the proposed guidelines, securities in banks’ trading books will be classified separately from those in their banking books, with instruments that can be included in the trading book, which are subject to market risk capital requirements; and those to be included in the banking book which is subject to credit risk capital requirements, listed out.
Banks will be required to establish well-defined policies, procedures, and documented practices for determining which instruments are included or excluded from the trading book when calculating their regulatory capital.
The RBI defines market risk as the potential for losses in both on- and off-balance-sheet positions arising from changes in market prices, with interest rate and equity risk applicable to trading book instruments, and foreign exchange risk (including gold and precious metals) relevant to both trading and banking book instruments.
Read detailed guidelines here.