The Reserve Bank of India has invited public comments on draft Amendment Directions proposing a comprehensive overhaul of the Net Open Position (NOP) framework for foreign exchange risk across banks, co-operative banks, regional rural banks, local area banks, All India Financial Institutions, and Standalone Primary Dealers. The revisions aim to align domestic prudential norms with Basel Committee standards and ensure uniform implementation across regulated entities. Key proposals include elimination of separate onshore and offshore NOP computation, inclusion of accumulated surplus of overseas operations in NOP, and requirement to maintain forex risk capital on actual NOP on a continuous, end-of-day basis. The draft also revises the shorthand method for NOP calculation by treating gold separately, permits limited exclusion of qualifying structural foreign exchange positions subject to strict conditions, and standardises exclusions for capital-deducted items and non-performing securities. Most entities would apply a 9% capital charge on overall NOP, while Standalone Primary Dealers would apply a higher 15% charge. The amendments are proposed to take effect from April 1, 2027, with comments invited until February 3, 2026.
Reserve Bank of India
RBI invites public comments on the draft Amendment Directions on Net Open Position – Revised Instructions
Date : Jan 14, 2026
Please refer to the FMRD Master Direction No. 1/2016-17 – Master Direction – Risk Management and Inter-Bank Dealings and the Prudential Norms on Capital Adequacy Directions, 2025 applicable to the different Regulated Entities (REs) which inter alia specify the methodology for computation of Net Open Position and calculation of capital charge on foreign exchange risk. Reserve Bank has released today the following draft Amendment Directions which modify the aforementioned instructions.
1. Reserve Bank of India (Commercial Banks – Prudential Norms on Capital Adequacy) Second Amendment Directions, 2026
2. Reserve Bank of India (Small Finance Banks – Prudential Norms on Capital Adequacy) Second Amendment Directions, 2026
3. Reserve Bank of India (Regional Rural Banks – Prudential Norms on Capital Adequacy) Amendment Directions, 2026
4. Reserve Bank of India (Local Area Banks – Prudential Norms on Capital Adequacy) Amendment Directions, 2026
5. Reserve Bank of India (Urban Co-operative Banks – Prudential Norms on Capital Adequacy) Amendment Directions, 2026
6. Reserve Bank of India (Rural Co-operative Banks – Prudential Norms on Capital Adequacy) Amendment Directions, 2026
7. Reserve Bank of India (All India Financial Institutions (AIFIs) – Prudential Norms on Capital Adequacy) Second Amendment Directions, 2026
8. Reserve Bank of India (Standalone Primary Dealers) Amendment Directions, 2026
The comments on the draft Amendment Directions are invited from the Regulated Entities, market participants, and other interested parties till February 3, 2026. The comments / feedback may be submitted through the link under the ‘Connect 2 Regulate’ Section available on the Reserve Bank’s website or may alternatively be forwarded to
The Chief General Manager
Market Risk Group
Department of Regulation, Central Office
Reserve Bank of India, 12th Floor
Shahid Bhagat Singh Marg
Fort Mumbai – 400 001
Or
by email
With the subject line ‘Feedback on Net Open Position – Revised Instructions’
Background and Objective
The extant guidelines on Net Open Position (NOP) are covered under the Master Direction – Risk Management and Inter-Bank Dealings and the Prudential Norms on Capital Adequacy Directions, 2025 applicable to the different REs. The Reserve Bank has comprehensively reviewed these instructions to ensure (i) greater alignment with the Basel Committee on Banking Supervision (BCBS) standards and (ii) consistent implementation across REs. The proposed revisions include, inter alia, (a) doing away with the separate calculation of offshore / onshore NOP (wherever applicable); (b) inclusion of accumulated surplus of overseas operations in NOP (wherever applicable); (c) maintenance of forex risk capital charge on the actual NOP; (d) modifying the Shorthand method for calculation of NOP in alignment with Basel guidelines, which treats open position in gold separately; and (e) provision to exempt certain structural forex positions from NOP.
(Brij Raj)
Chief General Manager
*****
Press Release: 2025-2026/1925
Reserve Bank of India
Draft for comments
RBI/2025-26/
DOR.MRG.REC.No. //2025-26
XX 2026
Reserve Bank of India (Commercial Banks – Prudential Norms on Capital Adequacy) Second Amendment Directions, 2026
Please refer to Annex I of the FMRD Master Direction No. 1/2016-17 – Master Direction – Risk Management and Inter-Bank Dealings and paragraph 199 (Section D.4) of the Reserve Bank of India (Commercial Banks – Prudential Norms on Capital Adequacy) Directions, 2025, which specify the methodology for computation of Net Open Position and calculation of capital charge on foreign exchange risk. Upon a review and to ensure greater alignment with international standards and consistent implementation across commercial banks, there is a felt need to amend these instructions.
2. Accordingly, in exercise of the powers conferred by Section 35A of the Banking Regulation Act, 1949 and all other provisions / laws enabling the Reserve Bank of India (RBI) to issue instructions in this regard, the Reserve Bank being satisfied that it is necessary and expedient in the public interest so to do, hereby, issues the Amendment Directions hereinafter specified.
3. (i) These instructions shall be called the Reserve Bank of India (Commercial Banks – Prudential Norms on Capital Adequacy) Second Amendment Directions, 2026.
(ii) These Amendment Directions shall come into effect from April 1, 2027.
4. The Reserve Bank of India (Commercial Banks – Prudential Norms on Capital Adequacy) Directions, 2025 are amended as provided below:
(i) In the extant Directions, the paragraph 199 (Section D.4) is hereby substituted by the following, namely: –
‘D.4 Foreign Exchange Risk
199. A bank shall compute capital charge for foreign exchange risk as per the following method.
Scope of Application
(1) A bank shall compute net open position and maintain capital charge for foreign exchange risk at both group / consolidated level and solo / standalone level. For this purpose, a bank may refer to paragraph 8 of these Directions.
(2) A bank shall meet the capital requirements for foreign exchange risk on a continuous basis, i.e., at the close of each business day.
Exclusions from net open position
(3) A bank shall not apply foreign exchange risk capital requirement to any position that is deducted from the bank’s regulatory capital, including a position that is hedging such a position.
(4) Holdings of capital instruments that are deducted from a bank’s capital or risk weighted at 1250 per cent are not required to be included in the forex risk capital requirements. This includes:
(i) holdings of the bank’s own eligible regulatory capital instruments; and
(ii) holdings of other banks’ and other financial entities’ eligible regulatory capital instruments, as well as intangible assets, where such assets are deducted from capital.
(5) A bank shall not apply forex risk capital requirements to securities which are (i) already matured and remain unpaid; or (ii) have been classified as a non-performing asset / investment. Such securities shall attract capital only for credit risk.
Exclusion of certain structural foreign exchange positions from net open position
(6) A bank shall have the option to exclude certain structural foreign currency investments from the calculation of net open position.
(7) The forex risk positions eligible for exclusion under sub-paragraph (6) above shall be structural (i.e., non-dealing) in nature such as positions arising from:
(i) investments in affiliated but not consolidated entities denominated in foreign currencies; or
(ii) investments in consolidated subsidiaries or branches denominated in foreign currencies.
(8) A bank must comply with each of the following conditions while excluding currency risk positions under sub-paragraph (6) above:
(i) The risk position shall be taken or maintained for the purpose of hedging partially or fully against the potential that changes in exchange rates could have an adverse effect on its capital ratio.
(ii) The exclusion is limited to the amount that neutralises the sensitivity of the capital ratio to movements in exchange rates.
(iii) The exclusion from the calculation is made for at least six months.
(iv) The establishment of a structural foreign exchange position and any changes in its position shall follow the bank’s risk management policy for structural foreign exchange positions.
(v) The exclusion from the calculation shall be applied consistently, with the exclusionary treatment of the hedge remaining in place for the life of the assets or other items.
(vi) The bank shall document and have available for supervisory review the positions and amounts to be excluded from market risk capital requirements.
Explanation: A matched currency risk position will protect a bank against loss from movements in exchange rates, but will not necessarily protect its capital adequacy ratio. If a bank has its capital denominated in its domestic currency and has a portfolio of foreign currency assets and liabilities that is completely matched, its capital / asset ratio will fall if the domestic currency depreciates. By running a short risk position in the domestic currency, the bank can protect its capital adequacy ratio, although it would result in a loss in the event of appreciation of the domestic currency.
An illustration of the exclusion of structural foreign currency investments from net open position is provided in sub-paragraph (9) below.
(9) Illustration of exclusion of structural foreign currency investments from net open position:
(i) The paragraphs below provide an example of the exclusion of structural foreign currency investments from net open position. The example uses a simplified scenario and is for illustrative purposes only.
(ii) A bank may adopt an alternative methodology, with reasonable assumptions, to determine its maximum net open position to be excluded. The methodology shall be documented in the bank’s risk management policy for structural foreign exchange positions. The policy shall be pre-approved by the DoS, RBI.
(iii) Assume a bank with the below balance sheet consisting of domestic currency (DC) assets / liabilities and foreign currency (FC) assets / liabilities.
Case 1: The forex assets and liabilities are perfectly matched.
| Forex Assets in FC | 300 | Forex Liabilities in FC | 300 |
| Exchange Rate | 1 | ||
| Forex Assets in DC (a)1 | 300 | Forex Liabilities in DC (c) | 300 |
| Domestic Assets (b) | 700 | Domestic Liabilities (d) | 540 |
| Capital (e = a + b – c – d) | 160 | ||
| Total Assets (f = a + b) | 1000 | ||
| Forex exposure (g = a – c) | 0 | ||
| Total RWA (h=f*100%) | 1000 | ||
| Capital Ratio (i = e / h) | 16.00% |
Assume that the foreign currency appreciates, with exchange rate increasing from 1 to 1.2. Although the forex assets and liabilities increase by the same percentage (20 per cent) and hence continue to be perfectly matched, the bank’s capital ratio will decline since forex RWAs increase by 20 per cent, while capital amount remains unchanged.
| Forex Assets in FC | 300 | Forex Liabilities in FC | 300 |
| Exchange Rate | 1.2 | ||
| Forex Assets in DC (a) | 360 | Forex Liabilities in DC (c) | 360 |
| Domestic Assets (b) | 700 | Domestic Liabilities (d) | 540 |
| Capital (e = a + b – c – d) | 160 | ||
| Total Assets (f = a + b) | 1060 | ||
| Forex exposure (g = a – c) | 0 | ||
| Total RWA (h = f * 100%) | 1060 | ||
| Capital Ratio (i = e / h) | 15.09% |
Case 2: The bank takes a structural long position in the foreign currency (i.e., short position in the domestic currency) to protect its capital ratio from possible appreciation of the foreign currency. This position will, however, affect the bank’s capital ratio adversely if the foreign currency depreciates.
| Forex Assets in FC | 300 | Forex Liabilities in FC | 200 |
| Exchange Rate | 1 | ||
| Forex Assets in DC (a) | 300 | Forex Liabilities in DC (c) | 200 |
| Domestic Assets (b) | 700 | Domestic Liabilities (d) | 640 |
| Capital (e = a + b – c – d) | 160 | ||
| Total Assets (f = a + b) | 1000 | ||
| Forex exposure (g = a – c) | 100 | ||
| Total RWA (h = f * 100%) | 1000 | ||
| Capital Ratio (i = e / h) | 16.00% |
Assume that the foreign currency appreciates, with exchange rate increasing from 1 to 1.2. Forex assets and liabilities increase 20 per cent. RWAs increase from 1000 to 1060 whereas the capital amount increases from 160 to 180. Overall, the bank’s capital ratio improves from 16 per cent to 16.98 per cent.
| Forex Assets in FC | 300 | Forex Liabilities in FC | 200 |
| Exchange Rate | 1.2 | ||
| Forex Assets in DC (a) | 360 | Forex Liabilities in DC (c) | 240 |
| Domestic Assets (b) | 700 | Domestic Liabilities (d) | 640 |
| Capital (e = a + b – c – d) | 180 | ||
| Total Assets (f = a + b) | 1060 | ||
| Forex exposure (g = a – c) | 120 | ||
| Total RWA (h = f * 100%) | 1060 | ||
| Capital Ratio (i = e / h) | 16.98% |
(iv) To determine the maximum amount of the risk position that can be excluded from net open position, the amount of additional capital required to maintain the capital ratio unchanged, for a unit change (1 per cent) in the exchange rate is to be calculated.
Step 1
Calculate the new RWA position with the revised exchange rate. For the illustration provided in Case 2 above, assume the foreign exchange rate increases from 1 to 1.01.
Forex Assets in DC = 300*1.01 = 303
Domestic Assets in DC = 700
Total Assets = 303 + 700 = 1003
Total RWAs = 1003 * 100% = 1003
Step 2
Now, calculate the new capital amount required and the increase in capital amount required in order to keep the capital ratio unchanged.
Initial capital ratio = 16.00%
New capital amount required = Initial capital ratio * New Total RWAs = 16% * 1003 = 160.48
Increase in capital amount required = New capital amount required – Initial capital amount = 160.48 – 160.00 = 0.48
Step 3
Amount of structural foreign exchange position that can be excluded from net open position = (Increase in capital amount required) / 1% = 0.48 / 0.01 = 48
Initial NOP from the structural foreign exchange position = Foreign currency assets – Foreign currency liabilities = 300 – 200 = 100
Hence, amount of structural foreign exchange position to be included in net open position = Initial net open position – Amount of structural foreign exchange position that can be excluded from net open position = 100 – 48 = 52
Alternate method:
An alternate method which provides the same result for the maximum amount of structural foreign exchange position that can be excluded from net open position is to multiply the capital ratio with the forex RWAs.
Maximum amount of structural foreign exchange position that can be excluded from net open position = (Capital / Total RWAs) * Forex RWAs = (160 / 1000) * 300 = 48
Note:
(a) The above example uses certain assumptions and simplifications (such as Risk weight = 100 per cent and equal for forex assets and domestic assets, operational RWAs not considered, etc.).
(b) The above example considers the maximum amount of structural foreign exchange position for a single foreign currency. In practice, a bank would have to separately calculate the maximum amount of structural foreign exchange position for each foreign currency for which it seeks an exclusion from net open position.
(c) The illustration only provides the maximum amount of structural foreign exchange position that can be excluded from Net Open Position. In order to be eligible for such exclusion, a bank shall meet all the conditions mentioned in sub-paragraphs (6) to (8) above.
Calculation of Net Open Position
(10) For measuring the capital requirement for foreign exchange risk, a bank shall include all positions, within the ‘Scope of Application’ above, in foreign currencies, including gold, regardless of whether these are in the trading book or banking book.
(11) The Net Open Position shall be calculated as under:
(i) Measure the exposure in a single currency position as set out in sub-paragraphs (12) to (18) below.
(ii) Measure the risks inherent in a bank’s mix of long and short positions in different currencies as set out in sub-paragraphs (19) to (21) below.
Measuring the exposure in a single currency
(12) The bank’s net open position in each currency shall be calculated, considering both onshore and offshore positions, by summing:
(i) the net spot position (i.e., all asset items less all liability items, including accrued interest, denominated in the currency in question);
(ii) the net forward position (i.e., all amounts to be received less all amounts to be paid, as indicated in sub-paragraph (13) below);
(iii) guarantees (and similar instruments) that are certain to be called and are likely to be irrecoverable;
(iv) net future income / expenses not yet accrued / due but where the amounts are certain and have been fully hedged by the bank, at its discretion;
(v) any other item representing a profit or loss in foreign currencies (depending on particular accounting conventions in different countries); and
(vi) the net delta-based equivalent of the total book of foreign currency options.
Note: Options are also subject to a separately calculated capital requirement for gamma and vega risks as described in paragraph 211(1). Alternatively, options and their associated underlying are subject to one of the other methods described in paragraph 211.
(13) The net forward position includes:
(i) tom and spot transactions which are not yet settled;
(ii) forward and futures transactions; and
(iii) principal on currency swaps and any other derivative transactions not included in the spot position.
(14) Positions in composite currencies need to be separately maintained but, for measuring a bank’s net open position, may be either treated as a currency in their own right or split into their component parts on a consistent basis. Positions in gold (spot plus forward) shall be first expressed in terms of the standard unit of measurement (tonnes / kilos / ounces, etc.), with the net position being valued at current spot rates.
Explanation: Where gold is part of a forward contract (quantity of gold to be received or to be delivered), any interest rate or foreign currency exposure from the other leg of the contract shall be reported as set out in paragraphs 186 to 194 and paragraph 199(12).
(15) Interest, other income and expenses shall be treated as follows: Interest accrued (i.e., earned but not yet received) and accrued expenses shall be included as a spot position. Unearned but expected future interest and anticipated expenses may be excluded unless the amounts are certain and the bank has taken the opportunity to hedge them. If a bank includes future income / expenses it shall do so on a consistent basis, and it would not be permitted to select only those expected future flows which reduces its position.
(16) Measurement of derivative positions: A bank shall use the net present values of derivative positions, including forward exchange contracts, discounted using current interest rates and valued at current spot rates. A bank may select the yield curve for the purpose of present value adjustments, provided the same is selected in a manner which is representative of the funding cost. A bank shall have an internal policy approved by its Asset Liability Committee (ALCO) regarding the yield curve / (s) to be used and apply it on a consistent basis.
Overseas operations in net open position
(17) Treatment of capital invested in overseas operations: Subject to the ‘Scope of Application’ above, a bank shall include all capital investments in overseas operations under the net spot position for calculation of net open position. For this purpose, overseas operations of a bank shall include overseas branches, IFSC Banking Units and Offshore Banking Units in Special Economic Zones, as well as overseas subsidiaries, associates and joint ventures.
(18) Treatment of accumulated surplus / unremitted surplus of overseas operations: Subject to the ‘Scope of Application’ above, a bank shall include all accumulated surplus / unremitted surplus of overseas operations under the net spot position for calculation of net open position.
Measuring the foreign exchange risk in a portfolio of foreign currency positions and gold
(19) For measuring the foreign exchange risk in a portfolio of foreign currency positions and gold, a bank shall use a shorthand method which treats all currencies equally.
(20) Under the shorthand method, the nominal amount (or net present value) of the net position in each foreign currency and in gold is converted at spot rates into the reporting currency. The overall net open position is measured by aggregating:
(i) the sum of the net short positions or the sum of the net long positions, whichever is greater; plus
(ii) the net position (short or long) in gold, regardless of sign.
Explanation:
(a) The spot rates to be used for this purpose shall be determined based on the extant FEDAI guidelines.
(b) Where the bank is assessing its foreign exchange risk on a consolidated basis, it may be technically impractical, in the case of some marginal operations, to include the currency positions of a foreign branch or subsidiary of the bank. In such cases, the internal limit in each currency may be used as a proxy for the positions. Provided there is adequate ex post monitoring of actual positions against such limits, the limits shall be added, without regard to sign, to the net open position in each currency.
(21) Transactions undertaken by a bank till the end of business day shall be included for calculation of Net Open Position. The transactions undertaken after the end of business day may be taken into the positions for the next day. For this purpose, a bank may define its own end of business day timings, but the same shall be determined as per a duly approved internal policy and followed on a consistent basis.
(22) The capital requirement for foreign exchange positions, including gold, shall be 9 per cent of the overall net open position computed using the shorthand method. This capital requirement is in addition to the capital requirement for credit risk, interest rate risk or any other risks on the on-balance sheet and off-balance sheet items pertaining to foreign exchange and gold transactions.
Illustration: See example in Table below.
| Table: Example of the shorthand measure of foreign exchange risk | ||||||
| JPY | EUR | GBP | CAD | USD | Gold | |
| Net position per currency | +50 | +100 | +150 | -20 | -180 | -35 |
| Net open position | +300 | -200 | 35 | |||
The capital requirement will be 9 per cent of the overall net open position. Thus, the capital requirement would be 9 per cent of the higher of either the net long currency positions or the net short currency positions (i.e., 300) and of the net position in gold (35) = 335 x 9 per cent = 30.15 (scalars would be applied as prescribed).’
(Sunil T S Nair)
Chief General Manager
1 Calculated as Forex Assets in FC * Exchange Rate = 300 * 1 = 300
*****
Reserve Bank of India
Draft for comments
RBI/2025-26/
DOR.MRG.REC.No. //2025-26
XX 2026
Reserve Bank of India (Small Finance Banks – Prudential Norms on Capital Adequacy) Second Amendment Directions, 2026
Please refer to Annex I of the FMRD Master Direction No. 1/2016-17 – Master Direction – Risk Management and Inter-Bank Dealings which inter alia prescribes the methodology for computation of Net Open Position. In order to ensure greater alignment with international standards and consistent implementation across Small Finance Banks, there is a felt need to review and specify the methodology for computation of Net Open Position by amending the Reserve Bank of India (Small Finance Banks – Prudential Norms on Capital Adequacy) Directions, 2025.
2. Accordingly, in exercise of the powers conferred by Section 35A of the Banking Regulation Act, 1949 and all other provisions / laws enabling the Reserve Bank of India (RBI) to issue instructions in this regard, the Reserve Bank being satisfied that it is necessary and expedient in the public interest so to do, hereby issues the Amendment Directions hereinafter specified.
3. (i) These instructions shall be called the Reserve Bank of India (Small Finance Banks – Prudential Norms on Capital Adequacy) Second Amendment Directions, 2026.
(ii) These Amendment Directions shall come into effect from April 1, 2027.
4. The Reserve Bank of India (Small Finance Banks – Prudential Norms on Capital Adequacy) Directions, 2025are amended as provided below:
i. In the extant Directions, the beginning of Chapter IV – Calculation of risk weighted assets (RWAs) stands amended with the insertions as highlighted, namely:-
‘Market risk and operational risk capital charges shall not be applicable to a bank. However, a bank shall compute the Net Open Position (NOP) for its foreign exchange and gold positions as per methodology specified in Annex VII.’
ii. In the extant Directions, Annex VII shall be inserted after Annex VI as given below:
‘Annex VII
Calculation of Net Open Position
1. Currently, an SFB is not required to calculate and maintain capital charge for foreign exchange risk. However, an SFB which is operating as an Authorised Dealer Category I bank, in terms of the applicable RBI guidelines, is required to inter alia monitor its Net Open Position. For this purpose, Net Open Position shall be calculated as per the paragraphs below.
A. Scope of Application
2. An SFB shall calculate the net open position on a continuous basis, i.e., at the close of each business day.
Exclusions from net open position
3. An SFB shall not include in the net open position any position that is deducted from the SFB’s regulatory capital, including a position that is hedging such a position.
4. Holdings of capital instruments that are deducted from an SFB’s capital or risk weighted at 1250 per cent are not required to be included in the net open position. This includes:
(i) holdings of the SFB’s own eligible regulatory capital instruments; and
(ii) holdings of other banks’ and other financial entities’ eligible regulatory capital instruments, as well as intangible assets, where such assets are deducted from capital.
5. An SFB shall not include in the net open position calculation, securities which are a) already matured and remain unpaid; or b) have been classified as a non-performing asset / investment.
B. Calculation of Net Open Position
6. For calculating the net open position, an SFB shall include all positions, within the ‘Scope of Application’ in section A above, in foreign currencies, including gold, regardless of whether these are in the trading book or banking book.
7. The net open position shall be calculated as under:
(i) Measure the exposure in a single currency position as set out in sub-paragraphs 8 to 12.
(ii) Measure the risks inherent in an SFB’s mix of long and short positions in different currencies as set out in paragraphs 13 to 15.
Measuring the exposure in a single currency
8. The SFB’s net open position in each currency shall be calculated by summing:
(i) the net spot position (i.e., all asset items less all liability items, including accrued interest, denominated in the currency in question);
(ii) the net forward position (i.e., all amounts to be received less all amounts to be paid, as indicated in sub-paragraph 9 below);
(iii) guarantees (and similar instruments) that are certain to be called and are likely to be irrecoverable;
(iv) net future income / expenses not yet accrued / due, but where the amounts are certain and have been fully hedged by the SFB, at its discretion;
(v) any other item representing a profit or loss in foreign currencies; and
(vi) the net delta-based equivalent of the total book of foreign currency options.
9. The net forward position includes:
(i) tom and spot transactions which are not yet settled;
(ii) forward and futures transactions; and
(iii) principal on currency swaps and any other derivative transactions not included in the spot position.
10. Positions in composite currencies need to be separately maintained but, for measuring an SFB’s net open position, may be either treated as a currency in their own right or split into their component parts on a consistent basis. Positions in gold (spot plus forward) shall be first expressed in terms of the standard unit of measurement (tonnes / kilos / ounces, etc.), with the net position being valued at current spot rates.
Explanation: Where gold is part of a forward contract (quantity of gold to be received or to be delivered), any foreign currency exposure from the other leg of the contract shall be reported as set out in sub-paragraph 8 above.
11. Interest, other income and expenses shall be treated as follows: Interest accrued (i.e., earned but not yet received) and accrued expenses shall be included as a spot position. Unearned but expected future interest and anticipated expenses may be excluded unless the amounts are certain and the SFB has taken the opportunity to hedge them. If an SFB includes future income / expenses it shall do so on a consistent basis, and it would not be permitted to select only those expected future flows which reduce its position.
12. Measurement of derivative positions: An SFB shall use the net present values of derivative positions, including forward exchange contracts, discounted using current interest rates and valued at current spot rates. An SFB may select the yield curve for the purpose of present value adjustments, provided the same is selected in a manner which is representative of the funding cost. An SFB shall have an internal policy approved by its Asset Liability Committee (ALCO) regarding the yield curve / (s) to be used and apply it on a consistent basis.
Measuring the foreign exchange risk in a portfolio of foreign currency positions and gold
13. For measuring the foreign exchange risk in a portfolio of foreign currency positions and gold, an SFB shall use a shorthand method which treats all currencies equally.
14. Under the shorthand method, the nominal amount (or net present value) of the net position in each foreign currency and in gold is converted at spot rates into the reporting currency. The overall net open position is measured by aggregating:
(i) the sum of the net short positions or the sum of the net long positions, whichever is greater; plus
(ii) the net position (short or long) in gold, regardless of sign.
Explanation: The spot rates to be used for this purpose shall be determined based on the extent FEDAI guidelines.
Illustration: See example in Table below.
| Table: Example of the shorthand measure of net open position | ||||||
| JPY | EUR | GBP | CAD | USD | Gold | |
| Net position per currency | +50 | +100 | +150 | -20 | -180 | -35 |
| Net open position | +300 | -200 | 35 | |||
Overall net open position is the higher of either the net long currency positions or the net short currency positions (i.e., 300) and of the net position in gold (35) = 335
15. Transactions undertaken by an SFB till the end of business day shall be included for calculation of Net Open Position. The transactions undertaken after the end of business day may be taken into the positions for the next day. For this purpose, an SFB may define its own end of business day timings, but the same shall be determined as per a duly approved internal policy and followed on a consistent basis.’
(Sunil T S Nair)
Chief General Manager
*****
Reserve Bank of India
Draft for comments
RBI/2025-26/
DOR.MRG.REC.No. //2025-26
XX 2026
Reserve Bank of India (Regional Rural Banks – Prudential Norms on Capital Adequacy) Amendment Directions, 2026
Please refer to Chapter III of the Reserve Bank of India (Regional Rural Banks – Prudential Norms on Capital Adequacy) Directions, 2025 which inter alia specifies the capital requirement on foreign exchange and gold open positions. Upon a review and to ensure consistent implementation across Regional Rural Banks, there is a felt need to amend these instructions.
2. Accordingly, in exercise of the powers conferred by section 35A of the Banking Regulation Act, 1949 and all other provisions / laws enabling the Reserve Bank of India (RBI) to issue instructions in this regard, the Reserve Bank being satisfied that it is necessary and expedient in the public interest so to do, hereby, issues the Amendment Directions hereinafter specified.
3. (i) These instructions shall be called the Reserve Bank of India (Regional Rural Banks – Prudential Norms on Capital Adequacy) Amendment Directions, 2026.
(ii) These Amendment Directions shall come into effect from April 1, 2027.
4. The Reserve Bank of India (Regional Rural Banks – Prudential Norms on Capital Adequacy) Directions, 2025 are amended as provided below:
i) In the extant Directions, the S.No.V in the Table under paragraph 15(1) shall be substituted by the following, namely:
| V | Market Risk on Net Open Position (applicable to on balance sheet and off balance sheet items)
Notes: (i) An RRB may refer to paragraph 15(6) below for calculation of Net Open Position. (ii) Risk weights on net open position from foreign exchange positions would be applicable only to RRBs which are Authorised Dealers. Other RRBs may calculate the risk weights on net open position by considering only the net open position from gold. |
100 |
ii) In the extant Directions, a paragraph 15(6) is hereby inserted after paragraph 15(5), as given below:
‘15(6) Computation of Net Open Position for Foreign Exchange Risk
Scope of Application
(i) An RRB shall meet the capital requirements for foreign exchange risk on a continuous basis, i.e., at the close of each business day.
Exclusions from net open position
(ii) An RRB shall not apply foreign exchange risk capital requirement to any position that is deducted from the RRB’s regulatory capital, including a position that is hedging such a position.
(iii) An RRB shall not apply forex risk capital requirements to securities which are a) already matured and remain unpaid; or b) have been classified as a non-performing asset / investment. Such securities shall attract capital only for credit risk.
Calculation of Net Open Position
(iv) For calculating the capital requirement for foreign exchange risk, an RRB shall include all positions, within the ‘Scope of Application’ above, in foreign currencies, including gold, regardless of whether these are held in the trading book or banking book.
Explanation: For this purpose, trading book includes all instruments that are classified as ‘Held for Trading’ or ‘Available for Sale’ as per Reserve Bank of India (Regional Rural Banks – Classification, Valuation, and Operation of Investment Portfolio) Directions, 2025. Banking book includes all items which are not included in the trading book.
(v) The Net Open Position shall be calculated as under:
(a) Measure the exposure in a single currency as set out in sub-paragraphs (vi) to (x).
(b) Measure the risks inherent in an RRB’s mix of long and short positions in different currencies as set out in sub-paragraphs (xi) to (xiv).
Measuring the exposure in a single currency
(vi) An RRB’s net open position in each currency shall be calculated by summing:
(a) the net spot position (i.e., all asset items less all liability items, including accrued interest, denominated in the currency in question);
(b) the net forward position (i.e., all amounts to be received less all amounts to be paid as indicated in sub-paragraph (vii) below);
(c) guarantees (and similar instruments) that are certain to be called and are likely to be irrecoverable;
(d) net future income / expenses not yet accrued / due but where the amounts are certain and have been fully hedged by the RRB, at its discretion;
(e) any other item representing a profit or loss in foreign currencies; and
(f) the net delta-based equivalent of the total book of foreign currency options.
(vii) The net forward position includes:
(a) tom and spot transactions which are not yet settled;
(b) forward and futures transactions; and
(c) principal on currency swaps and any other derivative transactions not included in the spot position.
(viii) Positions in composite currencies need to be separately maintained but, for measuring an RRB’s net open position, may be either treated as a currency in their own right or split into their component parts on a consistent basis. Positions in gold (spot plus forward) shall be first expressed in terms of the standard unit of measurement (tonnes / kilos, ounces, etc.), with the net position being valued at current spot rates.
Explanation: Where gold is part of a forward contract (quantity of gold to be received or to be delivered), any foreign currency exposure from the other leg of the contract shall be reported as set out in sub-paragraphs (iv) and (vi) above.
(ix) Interest, other income and expenses shall be treated as follows: Interest accrued (i.e., earned but not yet received) and accrued expenses shall be included as a spot position. Unearned but expected future interest and anticipated expenses may be excluded unless the amounts are certain and the RRB has taken the opportunity to hedge them. If an RRB includes future income / expenses it shall do so on a consistent basis, and it would not be permitted to select only those expected future flows which reduce its position.
(x) Measurement of derivative positions: An RRB shall use the net present values of derivative positions, including forward exchange contracts, discounted using current interest rates and valued at current spot rates. An RRB may select the yield curve for the purpose of present value adjustments, provided the same is selected in a manner which is representative of the funding cost. An RRB shall have an internal policy approved by its Asset Liability Committee (ALCO) regarding the yield curve / (s) to be used and apply it on a consistent basis.
Measuring the foreign exchange risk in a portfolio of foreign currency positions and gold
(xi) For measuring the foreign exchange risk in a portfolio of foreign currency positions and gold, an RRB shall use a shorthand method which treats all currencies equally.
(xii) Under the shorthand method, the nominal amount (or net present value) of the net position in each foreign currency and in gold is converted at spot rates into the reporting currency. The overall net open position is measured by aggregating:
(a) the sum of the net short positions or the sum of the net long positions, whichever is greater; plus
(b) the net position (short or long) in gold, regardless of sign.
Explanation: The spot rates to be used for this purpose shall be determined based on the extant FEDAI guidelines.
Illustration: See example in Table below.
| Table: Example of the shorthand measure of net open position | ||||||
| JPY | EUR | GBP | CAD | USD | Gold | |
| Net position per currency | +50 | +100 | +150 | -20 | -180 | -35 |
| Net open position | +300 | -200 | 35 | |||
Overall net open position is the higher of either the net long currency positions or the net short currency positions (i.e., 300) and of the net position in gold (35) = 335
(xiii) Transactions undertaken by an RRB till the end of business day shall be included for calculation of Net Open Position. The transactions undertaken after the end of business day may be taken into the positions for the next day. For this purpose, an RRB may define its own end of business day timings but the same shall be determined as per a duly approved internal policy and followed on a consistent basis.
(xiv) The Net Open Position shall be risk weighted at 100 per cent as prescribed at S.no. V in the Table under paragraph 15(1). This capital requirement is in addition to the capital requirement for credit risk or any other risks on the on-balance sheet and off-balance sheet items pertaining to foreign exchange and gold transactions.’
(Sunil T S Nair)
Chief General Manager
*****
Reserve Bank of India
Draft for comments
RBI/2025-26/
DOR.MRG.REC.No. //2025-26
XX 2026
Reserve Bank of India (Local Area Banks – Prudential Norms on Capital Adequacy) Amendment Directions, 2026
Please refer to paragraph 29 of the Reserve Bank of India (Local Area Banks – Prudential Norms on Capital Adequacy) Directions, 2025 which inter alia specifies the requirement for maintenance of capital charge on foreign exchange risk. Upon a review and to ensure greater alignment with international standards and consistent implementation across Local Area Banks, there is a felt need to amend these instructions.
2. Accordingly, in exercise of the powers conferred by Section 35A of the Banking Regulation Act, 1949 and all other provisions / laws enabling the Reserve Bank of India (RBI) to issue instructions in this regard, the Reserve Bank being satisfied that it is necessary and expedient in the public interest so to do, hereby, issues the Amendment Directions hereinafter specified.
3. (i) These instructions shall be called the Reserve Bank of India (Local Area Banks – Prudential Norms on Capital Adequacy) Amendment Directions, 2026.
(ii) These Amendment Directions shall come into effect from April 1, 2027.
4. The Reserve Bank of India (Local Area Banks – Prudential Norms on Capital Adequacy) Directions, 2025are amended as provided below:
i) In the extant Directions, the paragraph 29 is hereby substituted by the following, namely:
‘Measurement of capital charge for foreign exchange and gold open positions 29. An LAB shall compute capital charge for foreign exchange risk as per the following method.
Scope of Application
(1) An LAB shall meet the capital requirements for foreign exchange risk on a continuous basis, i.e., at the close of each business day.
Exclusions from net open position
(2) An LAB shall not apply foreign exchange risk capital requirement to any position that is deducted from the LAB’s regulatory capital, including a position that is hedging such a position.
(3) An LAB shall not apply forex risk capital requirements to securities which are a) already matured and remain unpaid; or b) have been classified as a non-performing asset / investment. Such securities shall attract capital only for credit risk.
Calculation of Net Open Position
(4) For calculating the capital requirement for foreign exchange risk, an LAB shall include all positions, within the ‘Scope of Application’ above, in foreign currencies, including gold, regardless of whether these are in the trading book or banking book.
(5) The Net Open Position shall be calculated as under:
(i) Measure the exposure in a single currency as set out in sub-paragraphs (6) to (10) below.
(ii) Measure the risks inherent in an LAB’s mix of long and short positions in different currencies as set out in sub-paragraphs (11) to (14) below.
Measuring the exposure in a single currency
(6) An LAB’s net open position in each currency shall be calculated by summing:
(i) the net spot position (i.e., all asset items less all liability items, including accrued interest, denominated in the currency in question);
(ii) the net forward position (i.e., all amounts to be received less all amounts to be paid as indicated in sub-paragraph (7) below);
(iii) guarantees (and similar instruments) that are certain to be called and are likely to be irrecoverable;
(iv) net future income / expenses not yet accrued / due but where the amounts are certain and have been fully hedged by the LAB, at its discretion;
(v) any other item representing a profit or loss in foreign currencies; and
(vi) the net delta-based equivalent of the total book of foreign currency options.
(7) The net forward position includes:
(i) tom and spot transactions which are not yet settled;
(ii) forward and futures transactions; and
(iii) principal on currency swaps and any other derivative transactions not included in the spot position.
(8) Positions in composite currencies need to be separately maintained but, for measuring an LAB’s net open position, may be either treated as a currency in their own right or split into their component parts on a consistent basis. Positions in gold (spot plus forward) shall be first expressed in terms of the standard unit of measurement (tonnes / kilos / ounces, etc.), with the net position being valued at current spot rates.
Explanation: Where gold is part of a forward contract (quantity of gold to be received or to be delivered), any interest rate or foreign currency exposure from the other leg of the contract shall be reported as set out in paragraphs 24 to 26 and 29(6) above.
(9) Interest, other income and expenses shall be treated as follows: Interest accrued (i.e., earned but not yet received) and accrued expenses shall be included as a spot position. Unearned but expected future interest and anticipated expenses may be excluded unless the amounts are certain and the LAB has taken the opportunity to hedge them. If an LAB includes future income / expenses it shall do so on a consistent basis, and it would not be permitted to select only those expected future flows which reduce its position.
(10) Measurement of derivative positions: An LAB shall use the net present values of derivative positions, including forward exchange contracts, discounted using current interest rates and valued at current spot rates. An LAB may select the yield curve for the purpose of present value adjustments, provided the same is selected in a manner which is representative of the funding cost. An LAB shall have an internal policy approved by its Asset Liability Committee (ALCO) regarding the yield curve / (s) to be used and apply it on a consistent basis.
Measuring the foreign exchange risk in a portfolio of foreign currency positions and gold
(11) The capital requirement for foreign exchange positions, including gold, shall be 9 per cent of the overall net open position. For measuring the overall net open position in a portfolio of foreign currency positions and gold, an LAB shall use a shorthand method which treats all currencies equally.
(12) Under the shorthand method, the nominal amount (or net present value) of the net position in each foreign currency and in gold is converted at spot rates into the reporting currency. The overall net open position is measured by aggregating:
(i) the sum of the net short positions or the sum of the net long positions, whichever is greater; plus
(ii) the net position (short or long) in gold, regardless of sign.
Explanation: The spot rates to be used for this purpose shall be determined based on the extant FEDAI guidelines.
Illustration: See example in Table below.
| Table: Example of the shorthand measure of net open position | ||||||
| JPY | EUR | GBP | CAD | USD | Gold | |
| Net position per currency | +50 | +100 | +150 | -20 | -180 | -35 |
| Net open position | +300 | -200 | 35 | |||
Overall net open position is the higher of either the net long currency positions or the net short currency positions (i.e., 300) and of the net position in gold (35) = 335. The capital requirement will be 9 per cent of the overall net open position. Thus, the capital requirement = 335 x 9 per cent = 30.15.
(13) Transactions undertaken by an LAB till the end of business day shall be included for calculation of Net Open Position. The transactions undertaken after the end of business day may be taken into the positions for the next day. For this purpose, an LAB may define its own end of business day timings but the same shall be determined as per a duly approved internal policy and followed on a consistent basis.
(14) This capital requirement is in addition to the capital requirement for credit risk, interest rate risk or any other risks on the on-balance sheet and off-balance sheet items pertaining to foreign exchange and gold transactions.’
ii) In the extant Directions, the paragraph 21(5) shall be deleted, as given below:
‘21(5) Risk weights for open positions
|
(Sunil T S Nair)
Chief General Manager
**********
Reserve Bank of India (Urban Co-operative Banks – Prudential Norms on Capital Adequacy) Amendment Directions, 2026
RBI/2025-26/
DOR.MRG.REC.No. //2025-26
XX 2026
Please refer to Annex I of the FMRD Master Direction No. 1/2016-17 – Master Direction – Risk Management and Inter-Bank Dealings and paragraphs 17 and 20 of the Reserve Bank of India (Urban Co-operative Banks – Prudential Norms on Capital Adequacy) Directions, 2025 which specify the methodology for computation of Net Open Position and calculation of capital charge on foreign exchange risk. Upon a review and to ensure consistent implementation across Urban Co-operative Banks, there is a felt need to amend these instructions.
2. Accordingly, in exercise of the powers conferred by Section 35A read with Section 56 of the Banking Regulation Act, 1949 and all other provisions / laws enabling the Reserve Bank of India (RBI) to issue instructions in this regard, the Reserve Bank being satisfied that it is necessary and expedient in the public interest so to do, hereby issues the Amendment Directions hereinafter specified.
3. (i) These instructions shall be called the Reserve Bank of India (Urban Co-operative Banks – Prudential Norms on Capital Adequacy) Amendment Directions, 2026.
(ii) These Amendment Directions shall come into effect from April 1, 2027.
4. The Reserve Bank of India (Urban Co-operative Banks – Prudential Norms on Capital Adequacy) Directions, 2025 are amended as provided below:
(i) In the extant Directions, the sub-paragraph 20(18) is hereby substituted by the following, namely: –
‘20(18) A UCB shall compute the capital charge for foreign exchange risk and gold open positions as per the following method.
Scope of Application
(i) A UCB shall meet the capital requirements for foreign exchange risk on a continuous basis, i.e., at the close of each business day.
Exclusions from net open position
(ii) A UCB shall not apply foreign exchange risk capital requirement to any position that is deducted from the bank’s regulatory capital, including a position that is hedging such a position.
(iii) A UCB shall not apply forex risk capital requirements to securities which are a) already matured and remain unpaid; or b) have been classified as a non-performing asset / investment. Such securities shall attract capital only for credit risk.
Calculation of Net Open Position
(iv) For calculating the capital requirement for foreign exchange risk, a UCB shall include all positions, within the ‘Scope of Application’ above, in foreign currencies, including gold, regardless of whether these are in the trading book or banking book.
Explanation: For this purpose, trading book includes all instruments that are classified as ‘Held for Trading’ or ‘Available for Sale’ as per Reserve Bank of India (Urban Co-operative Banks – Classification, Valuation, and Operation of Investment Portfolio) Directions, 2025. Banking book includes all items which are not included in the trading book.
(v) The Net Open Position shall be calculated as under:
(a) Measure the exposure in a single currency position as set out in sub-paragraphs (vi) to (x) below.
(b) Measure the risks inherent in a UCB’s mix of long and short positions in different currencies as set out in sub-paragraphs (xi) to (xiv).
Measuring the exposure in a single currency
(vi) The UCB’s net open position in each currency shall be calculated by summing:
(a) the net spot position (i.e., all asset items less all liability items, including accrued interest, denominated in the currency in question);
(b) the net forward position (i.e., all amounts to be received less all amounts to be paid as indicated in sub-paragraph (vii) below);
(c) guarantees (and similar instruments) that are certain to be called and are likely to be irrecoverable;
(d) net future income / expenses not yet accrued / due but where the amounts are certain and have been fully hedged by the UCB, at its discretion;
(e) any other item representing a profit or loss in foreign currencies; and
(f) the net delta-based equivalent of the total book of foreign currency options.
Note: Options are also subject to a separately calculated capital requirement for gamma and vega risks as described in sub-paragraph 21(7)(i). Alternatively, options and their associated underlying are subject to one of the other methods described in sub-paragraph 21(7)(ii).
(vii) The net forward position includes:
(a) tom and spot transactions which are not yet settled;
(b) forward and futures transactions; and
(c) principal on currency swaps and any other derivative transactions not included in the spot position.
(viii) Positions in composite currencies need to be separately maintained but, for measuring a UCB’s net open position, may be either treated as a currency in their own right or split into their component parts on a consistent basis. Positions in gold (spot plus forward) shall be first expressed in terms of the standard unit of measurement (tonnes / kilos, ounces, etc.), with the net position being valued at current spot rates.
Explanation: Where gold is part of a forward contract (quantity of gold to be received or to be delivered), any interest rate or foreign currency exposure from the other leg of the contract shall be reported as set out in sub-paragraphs 20(4) to 20(14) and sub-paragraph (vi) above.
(ix) Interest, other income and expenses shall be treated as follows: Interest accrued (i.e., earned but not yet received) and accrued expenses shall be included as a spot position. Unearned but expected future interest and anticipated expenses may be excluded unless the amounts are certain and the UCB has taken the opportunity to hedge them. If a UCB includes future income / expenses it shall do so on a consistent basis, and it would not be permitted to select only those expected future flows which reduces its position.
(x) Measurement of derivative positions: A UCB shall use the net present values of derivative positions, including forward exchange contracts, discounted using current interest rates and valued at current spot rates. A UCB may select the yield curve for the purpose of present value adjustments, provided the same is selected in a manner which is representative of the funding cost. A UCB shall have an internal policy approved by its Asset Liability Committee (ALCO) regarding the yield curve / (s) to be used and apply it on a consistent basis.
Measuring the foreign exchange risk in a portfolio of foreign currency positions and gold
(xi) For measuring the foreign exchange risk in a portfolio of foreign currency positions and gold, a UCB shall use a shorthand method which treats all currencies equally.
(xii) Under the shorthand method, the nominal amount (or net present value) of the net position in each foreign currency and in gold is converted at spot rates into the reporting currency. The overall net open position is measured by aggregating:
(a) the sum of the net short positions or the sum of the net long positions, whichever is greater; plus
(b) the net position (short or long) in gold, regardless of sign.
Explanation: The spot rates to be used for this purpose shall be determined based on the extant FEDAI guidelines.
(xiii) Transactions undertaken by a UCB till the end of business day shall be included for calculation of Net Open Position. The transactions undertaken after the end of business day may be taken into the positions for the next day. For this purpose, a UCB may define its own end of business day timings but the same shall be determined as per a duly approved internal policy and followed on a consistent basis.
(xiv) The capital requirement for foreign exchange positions, including gold, shall be 9 per cent of the overall net open position computed using the shorthand method. This capital requirement is in addition to the capital requirement for credit risk, interest rate risk or any other risks on the on-balance sheet and off-balance sheet items pertaining to foreign exchange and gold transactions.
Illustration: See example in Table below.
| Table: Example of the shorthand measure of foreign exchange risk | ||||||
| JPY | EUR | GBP | CAD | USD | Gold | |
| Net position per currency | +50 | +100 | +150 | -20 | -180 | -35 |
| Net open position | +300 | -200 | 35 | |||
The capital requirement will be 9 per cent of the overall net open position. Thus, the capital requirement would be 9 per cent of the higher of either the net long currency positions or the net short currency positions (i.e., 300) and of the net position in gold (35) = 335 x 9 per cent = 30.15.’
(ii) In the extant Directions, the S.No.V in the Table under paragraph 17(1) shall be substituted by the following, namely:
| V | Market Risk on Net Open Position (excluding AD category I UCBs)
Notes: (i) A UCB may refer to paragraph 20(18) for calculation of Net Open Position. (ii) Risk weights on net open position from foreign exchange positions would be applicable only for UCBs which are Authorised Dealers. Other UCBs may calculate the risk weights on Net Open Position by considering only the net open position from gold. |
100 |
(Sunil T S Nair)
Chief General Manager
***********
Reserve Bank of India (Rural Co-operative Banks – Prudential Norms on Capital Adequacy) Amendment Directions, 2026
RBI/2025-26/
DOR.MRG.REC.No. //2025-26
XX 2026
Please refer to Annex I of the FMRD Master Direction No. 1/2016-17 – Master Direction – Risk Management and Inter-Bank Dealings and Chapter III of Reserve Bank of India (Rural Co-operative Banks – Prudential Norms on Capital Adequacy) Directions, 2025 which inter alia specify the capital requirement on foreign exchange and gold open positions. Upon a review and to ensure consistent implementation across Rural Co-operative Banks, there is a felt need to amend these instructions.
2. Accordingly, in exercise of the powers conferred by section 35A read with Section 56 of the Banking Regulation Act, 1949 and all other provisions / laws enabling the Reserve Bank of India (RBI) to issue instructions in this regard, the Reserve Bank being satisfied that it is necessary and expedient in the public interest so to do, hereby, issues the Amendment Directions hereinafter specified.
3. (i) These instructions shall be called the Reserve Bank of India (Rural Co-operative Banks – Prudential Norms on Capital Adequacy) Amendment Directions, 2026.
(ii) These Directions shall come into effect from April 1, 2027.
4. The Reserve Bank of India (Rural Co-operative Banks – Prudential Norms on Capital Adequacy) Directions, 2025 are amended as provided below:
i) In the extant Directions, the S.No.V in the Table under paragraph 17(1) shall be substituted by the following:
| V | Market Risk on Net Open Position (applicable to on balance sheet and off balance sheet items)
Notes: (i) An RCB may refer to paragraph 17(4) below for calculation of Net Open Position. (ii) Risk weights on net open position from foreign exchange positions would be applicable only to RCBs which are Authorised Dealers. Other RCBs may calculate the risk weights on Net Open Position by considering only the net open position from gold. |
100 |
ii) In the extant Directions, a paragraph 17(4) is hereby inserted after paragraph 17(3), as given below:
‘17(4) Computation of Net Open Position for Foreign Exchange Risk
Scope of Application
(i) An RCB shall meet the capital requirements for foreign exchange risk on a continuous basis, i.e., at the close of each business day.
Exclusions from net open position
(ii) An RCB shall not apply foreign exchange risk capital requirement to any position that is deducted from the RCB’s regulatory capital, including a position that is hedging such a position.
(iii) An RCB shall not apply forex risk capital requirements to securities which are a) already matured and remain unpaid; or b) have been classified as a non-performing asset / investment. Such securities shall attract capital only for credit risk.
Calculation of Net Open Position
(iv) For calculating the capital requirement for foreign exchange risk, an RCB shall include all positions, within the ‘Scope of Application’ above, in foreign currencies, including gold.
Explanation: For this purpose, an RCB shall include all assets, liabilities, and off-balance sheet positions in foreign currencies, including gold.
(v) The Net Open Position shall be calculated as under:
(a) Measure the exposure in a single currency as set out in sub-paragraphs (vi) to (x) below.
(b) Measure the risks inherent in an RCB’s mix of long and short positions in different currencies as set out in sub-paragraphs (xi) to (xiv) below.
Measuring the exposure in a single currency
(vi) An RCB’s net open position in each currency shall be calculated by summing:
(a) the net spot position (i.e., all asset items less all liability items, including accrued interest, denominated in the currency in question);
(b) the net forward position (i.e., all amounts to be received less all amounts to be paid as indicated in sub-paragraph (vii) below);
(c) guarantees (and similar instruments) that are certain to be called and are likely to be irrecoverable;
(d) net future income / expenses not yet accrued / due but where the amounts are certain and have been fully hedged by the RCB, at its discretion;
(e) any other item representing a profit or loss in foreign currencies; and
(f) the net delta-based equivalent of the total book of foreign currency options.
(vii) The net forward position includes:
(a) tom and spot transactions which are not yet settled;
(b) forward and futures transactions; and
(c) principal on currency swaps and any other derivative transactions not included in the spot position.
(viii) Positions in composite currencies need to be separately maintained but, for measuring an RCB’s net open position, may be either treated as a currency in their own right or split into their component parts on a consistent basis. Positions in gold (spot plus forward) shall be first expressed in terms of the standard unit of measurement (tonnes / kilos, ounces, etc.), with the net position being valued at current spot rates.
Explanation: Where gold is part of a forward contract (quantity of gold to be received or to be delivered), any foreign currency exposure from the other leg of the contract shall be reported as set out in sub-paragraphs (iv) and (vi) above.
(ix) Interest, other income and expenses shall be treated as follows: Interest accrued (i.e., earned but not yet received) and accrued expenses shall be included as a spot position. Unearned but expected future interest and anticipated expenses may be excluded unless the amounts are certain and the RCB has taken the opportunity to hedge them. If an RCB includes future income / expenses it shall do so on a consistent basis, and it would not be permitted to select only those expected future flows which reduce its position.
(x) Measurement of derivative positions: An RCB shall use the net present values of derivative positions, including forward exchange contracts, discounted using current interest rates and valued at current spot rates. An RCB may select the yield curve for the purpose of present value adjustments, provided the same is selected in a manner which is representative of the funding cost. An RCB shall have an internal policy approved by its Asset Liability Committee (ALCO) regarding the yield curve / (s) to be used and apply it on a consistent basis.
Measuring the foreign exchange risk in a portfolio of foreign currency positions and gold
(xi) For measuring the foreign exchange risk in a portfolio of foreign currency positions and gold, an RCB shall use a shorthand method which treats all currencies equally.
(xii) Under the shorthand method, the nominal amount (or net present value) of the net position in each foreign currency and in gold is converted at spot rates into the reporting currency. The overall net open position is measured by aggregating:
(a) the sum of the net short positions or the sum of the net long positions, whichever is greater; plus
(b) the net position (short or long) in gold, regardless of sign.
Explanation: The spot rates to be used for this purpose shall be determined based on the extant FEDAI guidelines.
Illustration: See example in Table below.
| Table: Example of the shorthand measure of net open position | ||||||
| JPY | EUR | GBP | CAD | USD | Gold | |
| Net position per currency | +50 | +100 | +150 | -20 | -180 | -35 |
| Net open position | +300 | -200 | 35 | |||
Overall net open position is the higher of either the net long currency positions or the net short currency positions (i.e., 300) and of the net position in gold (35) = 335
(xiii) Transactions undertaken by an RCB till the end of business day shall be included for calculation of Net Open Position. The transactions undertaken after the end of business day may be taken into the positions for the next day. For this purpose, an RCB may define its own end of business day timings but the same shall be determined as per a duly approved internal policy and followed on a consistent basis.
(xiv) Net Open Position shall be risk weighted at 100 per cent as prescribed at S.No. V in the Table under paragraph 17(1). This capital requirement is in addition to the capital requirement for credit risk or any other risks on the on-balance sheet and off-balance sheet items pertaining to foreign exchange and gold transactions.’
(Sunil T S Nair)
Chief General Manager
***********
Reserve Bank of India (All India Financial Institutions (AIFIs) – Prudential Norms on Capital Adequacy) Second Amendment Directions, 2026
RBI/2025-26/
DOR.MRG.REC.No. //2025-26
XX 2026
Please refer to Annex I of the FMRD Master Direction No. 1/2016-17 – Master Direction – Risk Management and Inter-Bank Dealings and paragraph 192 (Section D.4) of the Reserve Bank of India (All India Financial Institutions (AIFIs) – Prudential Norms on Capital Adequacy) Directions, 2025, which specify the methodology for computation of Net Open Position and calculation of capital charge on foreign exchange risk. Upon a review and to ensure greater alignment with international standards and consistent implementation across All India Financial Institutions, there is a felt need to amend these instructions.
2. Accordingly, in exercise of the powers conferred by Section 45L of the Reserve Bank of India Act, 1934 and all other provisions / laws enabling the Reserve Bank of India (RBI) to issue instructions in this regard, the Reserve Bank being satisfied that it is necessary and expedient in the public interest so to do, hereby, issues the Amendment Directions hereinafter specified.
3. (i) These instructions shall be called the Reserve Bank of India (All India Financial Institutions (AIFIs) – Prudential Norms on Capital Adequacy) Second Amendment Directions, 2026.
(ii) These Amendment Directions shall come into effect from April 1, 2027.
4. Reserve Bank of India (All India Financial Institutions (AIFIs) – Prudential Norms on Capital Adequacy) Directions, 2025 are amended as provided below:
(i) In the extant Directions, Paragraph 192 (Section D.4) is hereby substituted by the following, namely: –
‘D.4 Foreign Exchange Risk
192. An AIFI shall compute capital charge for foreign exchange risk as per the following method.
Scope of Application
(1) An AIFI shall compute net open position and maintain capital charge for foreign exchange risk at both group / consolidated level and solo / standalone level. For this purpose, an AIFI may refer to paragraph 8 of these Directions.
(2) An AIFI shall meet the capital requirements for foreign exchange risk on a continuous basis, i.e., at the close of each business day.
Exclusions from net open position
(3) An AIFI shall not apply foreign exchange risk capital requirement to any position that is deducted from the AIFI’s regulatory capital, including a position that is hedging such a position.
(4) Holdings of capital instruments that are deducted from an AIFI’s capital or risk weighted at 1250 per cent are not required to be included in the forex risk capital requirements. This includes:
(i) holdings of the AIFI’s own eligible regulatory capital instruments; and
(ii) holdings of other AIFIs’ and other financial entities’ eligible regulatory capital instruments, as well as intangible assets, where such assets are deducted from capital.
(5) An AIFI shall not apply forex risk capital requirements to securities which are (i) already matured and remain unpaid; or (ii) have been classified as non-performing asset / investment. Such securities shall attract capital only for credit risk.
Exclusion of certain structural foreign exchange positions from net open position
(6) An AIFI shall have the option to exclude certain structural foreign currency investments from the calculation of net open position.
(7) The forex risk positions eligible for exclusion under sub-paragraph (6) above shall be structural (i.e., non-dealing) in nature such as positions arising from:
(i) investments in affiliated but not consolidated entities denominated in foreign currencies; or
(ii) investments in consolidated subsidiaries or branches / offices denominated in foreign currencies.
(8) An AIFI must comply with each of the following conditions while excluding currency risk positions under sub-paragraph (6) above:
(i) The risk position shall be taken or maintained for the purpose of hedging partially or fully against the potential that changes in exchange rates could have an adverse effect on its capital ratio.
(ii) The exclusion is limited to the amount that neutralises the sensitivity of the capital ratio to movements in exchange rates.
(iii) The exclusion from the calculation is made for at least six months.
(iv) The establishment of a structural foreign exchange position and any changes in its position shall follow the AIFI’s risk management policy for structural foreign exchange positions.
(v) The exclusion from the calculation shall be applied consistently, with the exclusionary treatment of the hedge remaining in place for the life of the assets or other items.
(vi) The AIFI shall document and have available for supervisory review the positions and amounts to be excluded from market risk capital requirements.
Explanation: A matched currency risk position will protect an AIFI against loss from movements in exchange rates, but will not necessarily protect its capital adequacy ratio. If an AIFI has its capital denominated in its domestic currency and has a portfolio of foreign currency assets and liabilities that is completely matched, its capital / asset ratio will fall if the domestic currency depreciates. By running a short risk position in the domestic currency, the AIFI can protect its capital adequacy ratio, although it would result in a loss in the event of appreciation of the domestic currency.
An illustration of the exclusion of structural foreign currency investments from net open position is provided in sub-paragraph (9) below.
(9) Illustration of exclusion of structural foreign currency investments from net open position:
(i) The paragraphs below provide an example of the exclusion of structural foreign currency investments from net open position. The example uses a simplified scenario and is for illustrative purposes only.
(ii) An AIFI may adopt an alternative methodology, with reasonable assumptions, to determine its maximum net open position to be excluded. The methodology shall be documented in the AIFI’s risk management policy for structural foreign exchange positions. The policy shall be pre-approved by the DoS, RBI.
(iii) Assume an AIFI with the below balance sheet consisting of domestic currency (DC) assets / liabilities and foreign currency (FC) assets / liabilities.
Case 1: The forex assets and liabilities are perfectly matched.
| Forex Assets in FC | 300 | Forex Liabilities in FC | 300 |
| Exchange Rate | 1 | ||
| Forex Assets in DC (a)1 | 300 | Forex Liabilities in DC (c) | 300 |
| Domestic Assets (b) | 700 | Domestic Liabilities (d) | 540 |
| Capital (e = a + b – c – d) | 160 | ||
| Total Assets (f = a + b) | 1000 | ||
| Forex exposure (g = a – c) | 0 | ||
| Total RWA (h = f * 100%) | 1000 | ||
| Capital Ratio (i = e / h) | 16.00% |
Assume that the foreign currency appreciates, with exchange rate increasing from 1 to 1.2. Although, the forex assets and liabilities increase by the same percentage (20 per cent) and hence continue to be perfectly matched, the AIFI’s capital ratio will decline since forex RWAs increase by 20 per cent, while capital amount remains unchanged.
| Forex Assets in FC | 300 | Forex Liabilities in FC | 300 |
| Exchange Rate | 1.2 | ||
| Forex Assets in DC (a) | 360 | Forex Liabilities in DC (c) | 360 |
| Domestic Assets (b) | 700 | Domestic Liabilities (d) | 540 |
| Capital (e = a + b – c – d) | 160 | ||
| Total Assets (f = a + b) | 1060 | ||
| Forex exposure (g = a – c) | 0 | ||
| Total RWA (h = f * 100%) | 1060 | ||
| Capital Ratio (i = e / h) | 15.09% |
Case 2: The AIFI takes a structural long position in the foreign currency (i.e., short position in the domestic currency) to protect its capital ratio from possible appreciation of the foreign currency. This position will however affect the AIFI’s capital ratio adversely if the foreign currency depreciates.
| Forex Assets in FC | 300 | Forex Liabilities in FC | 200 |
| Exchange Rate | 1 | ||
| Forex Assets in DC (a) | 300 | Forex Liabilities in DC (c) | 200 |
| Domestic Assets (b) | 700 | Domestic Liabilities (d) | 640 |
| Capital (e = a + b – c – d) | 160 | ||
| Total Assets (f = a + b) | 1000 | ||
| Forex exposure (g = a – c) | 100 | ||
| Total RWA (h = f * 100%) | 1000 | ||
| Capital Ratio (i = e / h) | 16.00% |
Assume that the foreign currency appreciates, with exchange rate increasing from 1 to 1.2. Forex assets and liabilities increase 20 per cent. RWAs increase from 1000 to 1060 whereas the capital amount increases from 160 to 180. Overall, the AIFI’s capital ratio improves from 16 per cent to 16.98 per cent.
| Forex Assets in FC | 300 | Forex Liabilities in FC | 200 |
| Exchange Rate | 1.2 | ||
| Forex Assets in DC (a) | 360 | Forex Liabilities in DC (c) | 240 |
| Domestic Assets (b) | 700 | Domestic Liabilities (d) | 640 |
| Capital (e = a + b – c – d) | 180 | ||
| Total Assets (f = a + b) | 1060 | ||
| Forex exposure (g = a – c) | 120 | ||
| Total RWA (h = f * 100%) | 1060 | ||
| Capital Ratio (i = e / h) | 16.98% |
(iv) To determine the maximum amount of the risk position that can be excluded from net open position, the amount of additional capital required to maintain the capital ratio unchanged, for a unit change (1 per cent) in the exchange rate is to be calculated.
Step 1
Calculate the new RWA position with the revised exchange rate. For the illustration provided in Case 2 above, assume the foreign exchange rate increases from 1 to 1.01.
Forex Assets in DC = 300*1.01 = 303
Domestic Assets in DC = 700
Total Assets = 303 + 700 = 1003
Total RWAs = 1003 * 100% = 1003
Step 2
Now, calculate the new capital amount required and the increase in capital amount required in order to keep the capital ratio unchanged.
Initial capital ratio = 16.00%
New capital amount required = Initial capital ratio * New Total RWAs = 16% * 1003 = 160.48
Increase in capital amount required = New capital amount required – Initial capital amount = 160.48 – 160.00 = 0.48
Step 3
Amount of structural foreign exchange position that can be excluded from net open position = (Increase in capital amount required) / 1% = 0.48 / 0.01 = 48
Initial NOP from the structural foreign exchange position = Foreign currency assets – Foreign currency liabilities = 300 – 200 = 100
Hence, amount of structural foreign exchange position to be included in net open position = Initial net open position – Amount of structural foreign exchange position that can be excluded from net open position = 100 – 48 = 52
Alternate method:
An alternate method which provides the same result for the maximum amount of structural foreign exchange position that can be excluded from net open position is to multiply the capital ratio with the forex RWAs.
Maximum amount of structural foreign exchange position that can be excluded from net open position = (Capital / Total RWAs) * Forex RWAs = (160 / 1000) * 300 = 48
Note:
(a) The above example uses certain assumptions and simplifications (such as Risk weight = 100 per cent and equal for forex assets and domestic assets, operational RWAs not considered, etc.).
(b) The above example considers the maximum amount of structural foreign exchange position for a single foreign currency. In practice, an AIFI would have to separately calculate the maximum amount of structural foreign exchange position for each foreign currency for which it seeks an exclusion from net open position.
(c) The illustration only provides the maximum amount of structural foreign exchange position that can be excluded from Net Open Position. In order to be eligible for such exclusion, an AIFI shall meet all the conditions mentioned in sub-paragraphs (6) to (8) above.
Calculation of Net Open Position
(10) For measuring the capital requirement for foreign exchange risk, an AIFI shall include all positions, within the ‘Scope of Application’ above, in foreign currencies, including gold, regardless of whether these are in the trading book or banking book.
(11) The Net Open Position shall be calculated as under:
(i) Measure the exposure in a single currency as set out in sub-paragraphs (12) to (18) below.
(ii) Measure the risks inherent in an AIFI’s mix of long and short positions in different currencies as set out in sub-paragraphs (19) to (21) below.
Measuring the exposure in a single currency
(12) An AIFI’s net open position in each currency shall be calculated, considering both onshore and offshore positions, by summing:
(i) the net spot position (i.e., all asset items less all liability items, including accrued interest, denominated in the currency in question);
(ii) the net forward position (i.e., all amounts to be received less all amounts to be paid as indicated in sub-paragraph (13) below);
(iii) guarantees (and similar instruments) that are certain to be called and are likely to be irrecoverable;
(iv) net future income / expenses not yet accrued / due but where the amounts are certain and have been fully hedged by the AIFI, at its discretion;
(v) any other item representing a profit or loss in foreign currencies (depending on particular accounting conventions in different countries); and
(vi) the net delta-based equivalent of the total book of foreign currency options.
Note: Options are also subject to a separately calculated capital requirement for gamma and vega risks as described in paragraph 205(1). Alternatively, options and their associated underlying are subject to one of the other methods described in paragraph 205.
(13) The net forward position includes:
(i) tom and spot transactions which are not yet settled;
(ii) forward and futures transactions; and
(iii) principal on currency swaps and any other derivative transactions not included in the spot position.
(14) Positions in composite currencies need to be separately maintained but, for measuring an AIFI’s net open position, may be either treated as a currency in their own right or split into their component parts on a consistent basis. Positions in gold (spot plus forward) shall be first expressed in terms of the standard unit of measurement (tonnes / kilos / ounces, etc.), with the net position being valued at current spot rates.
Explanation: Where gold is part of a forward contract (quantity of gold to be received or to be delivered), any interest rate or foreign currency exposure from the other leg of the contract shall be reported as set out in paragraphs 178 to 187 and paragraph 192(12).
(15) Interest, other income and expenses shall be treated as follows: Interest accrued (i.e., earned but not yet received) and accrued expenses shall be included as a spot position. Unearned but expected future interest and anticipated expenses may be excluded unless the amounts are certain and the AIFI has taken the opportunity to hedge them. If an AIFI includes future income / expenses it shall do so on a consistent basis, and it would not be permitted to select only those expected future flows which reduce its position.
(16) Measurement of derivative positions: An AIFI shall use the net present values of derivative positions, including forward exchange contracts, discounted using current interest rates and valued at current spot rates. An AIFI may select the yield curve for the purpose of present value adjustments, provided the same is selected in a manner which is representative of the funding cost. An AIFI shall have an internal policy approved by its Asset Liability Committee (ALCO) regarding the yield curve / (s) to be used and apply it on a consistent basis.
Overseas operations in net open position
(17) Treatment of capital invested in overseas operations: Subject to the ‘Scope of Application’ above, an AIFI shall include all capital investments in overseas operations under the net spot position for calculation of net open position. For this purpose, overseas operations of an AIFI shall include overseas branches, IFSC Banking Units and Offshore Banking Units in Special Economic Zones, as well as overseas subsidiaries, associates and joint ventures.
(18) Treatment of accumulated surplus / unremitted surplus of overseas operations: Subject to the ‘Scope of Application’ above, an AIFI shall include all accumulated surplus / unremitted surplus of overseas operations under the net spot position for calculation of net open position.
Measuring the foreign exchange risk in a portfolio of foreign currency positions and gold
(19) For measuring the foreign exchange risk in a portfolio of foreign currency positions and gold, an AIFI shall use a shorthand method which treats all currencies equally.
(20) Under the shorthand method, the nominal amount (or net present value) of the net position in each foreign currency and in gold is converted at spot rates into the reporting currency. The overall net open position is measured by aggregating:
(i) the sum of the net short positions or the sum of the net long positions, whichever is greater; plus
(ii) the net position (short or long) in gold, regardless of sign.
Explanation:
(a) The spot rates to be used for this purpose shall be determined based on the extant FEDAI guidelines.
(b) Where the AIFI is assessing its foreign exchange risk on a consolidated basis, it may be technically impractical, in the case of some marginal operations, to include the currency positions of a foreign branch or subsidiary of the AIFI. In such cases, the internal limit in each currency may be used as a proxy for the positions. Provided there is adequate ex post monitoring of actual positions against such limits, the limits shall be added, without regard to sign, to the net open position in each currency.
(21) Transactions undertaken by an AIFI till the end of business day shall be included for calculation of Net Open Position. The transactions undertaken after the end of business day may be taken into the positions for the next day. For this purpose, an AIFI may define its own end of business day timings, but the same shall be determined as per a duly approved internal policy and followed on a consistent basis.
(22) The capital requirement for foreign exchange positions, including gold, shall be 9 per cent of the overall net open position computed using the shorthand method. This capital requirement is in addition to the capital requirement for credit risk, interest rate risk or any other risks on the on-balance sheet and off-balance sheet items pertaining to foreign exchange and gold transactions.
Illustration: See example in Table below.
| Table: Example of the shorthand measure of foreign exchange risk | ||||||
| JPY | EUR | GBP | CAD | USD | Gold | |
| Net position per currency | +50 | +100 | +150 | -20 | -180 | -35 |
| Net open position | +300 | -200 | 35 | |||
The capital requirement will be 9 per cent of the overall net open position. Thus, the capital requirement would be 9 per cent of the higher of either the net long currency positions or the net short currency positions (i.e., 300) and of the net position in gold (35) = 335 x 9 per cent = 30.15.’
(Sunil T S Nair)
Chief General Manager
Notes:
1Calculated as Forex Assets in FC * Exchange Rate = 300 * 1 = 300
**********
Reserve Bank of India (Standalone Primary Dealers) Amendment Directions, 2026
RBI/2025-26/
DOR.MRG.REC.No. //2025-26
XX 2026
Please refer to Annex I of the FMRD Master Direction No. 1/2016-17 – Master Direction – Risk Management and Inter-Bank Dealings and paragraphs 92 and 93 (section E.1.4) of the Reserve Bank of India (Standalone Primary Dealers) Directions, 2025, which inter alia specify the methodology for computation of Net Open Position and calculation of capital charge for foreign exchange risk. Upon a review and to ensure greater alignment with international standards and consistent implementation across Standalone Primary Dealers (SPDs), there is a felt need to amend these instructions.
2. Accordingly, in exercise of the powers conferred by Section 45JA, 45L and 45M of the Reserve Bank of India Act, 1934 and all other provisions / laws enabling the Reserve Bank to issue instructions in this regard, the Reserve Bank being satisfied that it is necessary and expedient in the public interest so to do, hereby, issues the Amendment Directions hereinafter specified.
3. (i) These instructions shall be called the Reserve Bank of India (Standalone Primary Dealers) Amendment Directions, 2026.
(ii) These Amendment Directions shall come into effect from April 1, 2027.
4. The Reserve Bank of India (Standalone Primary Dealers) Directions, 2025 are amended as provided below.
i) In the extant instructions, paragraph 92 (section E.1.4) is hereby substituted by the following, namely:
‘E.1.4 Capital Charge for Foreign Exchange (FE) Position
92. An SPD shall compute capital charge for foreign exchange risk as per the following method.
Scope of Application
(1) An SPD shall meet the capital requirements for foreign exchange risk on a continuous basis, i.e., at the close of each business day.
Exclusions from net open position
(2) An SPD shall not apply foreign exchange risk capital requirement to any position that is deducted from the SPD’s regulatory capital, including a position that is hedging such a position.
(3) An SPD shall not apply forex risk capital requirements to securities which are a) already matured and remain unpaid; or b) have been classified as a non-performing asset / investment. Such securities shall attract capital only for credit risk.
Calculation of Net Open Position
(4) For calculating the capital requirement for foreign exchange risk, an SPD shall include all assets, liabilities, and off-balance sheet positions, within the ‘Scope of Application’ above, in foreign currencies, including gold.
Note: In terms of paragraph 119(4), an SPD is not allowed to undertake trading / broking in gold.
(5) The Net Open Position shall be calculated as under:
(i) Measure the exposure in a single currency as set out in paragraphs 92(6) to 92(10).
(ii) Measure the risks inherent in an SPD’s mix of long and short positions in different currencies as set out in paragraphs 92(11) to 92(14).
Measuring the exposure in a single currency
(6) An SPD’s net open position in each currency shall be calculated by summing:
(i) the net spot position (i.e., all asset items less all liability items, including accrued interest, denominated in the currency in question);
(ii) the net forward position (i.e., all amounts to be received less all amounts to be paid as indicated in paragraph 92(7));
(iii) net future income / expenses not yet accrued / due but where the amounts are certain and have been fully hedged by the SPD, at its discretion;
(iv) any other item representing a profit or loss in foreign currencies; and
(v) the net delta-based equivalent of the total book of foreign currency options.
(7) The net forward position includes:
(i) tom and spot transactions which are not yet settled;
(ii) forward and futures transactions; and
(iii) principal on currency swaps and any other derivative transactions not included in the spot position.
(8) Positions in composite currencies need to be separately maintained but, for measuring an SPD’s net open position, may be either treated as a currency in their own right or split into their component parts on a consistent basis. Positions in gold (spot plus forward) should be first expressed in terms of the standard unit of measurement (tonnes / kilos / ounces, etc.), with the net position being valued at current spot rates.
(9) Interest, other income and expenses should be treated as follows: Interest accrued (i.e., earned but not yet received) and accrued expenses should be included as a spot position. Unearned but expected future interest and anticipated expenses may be excluded unless the amounts are certain and the SPD has taken the opportunity to hedge them. If an SPD includes future income / expenses it should do so on a consistent basis, and it would not be permitted to select only those expected future flows which reduces its position.
(10) Measurement of derivative positions: An SPD shall use the net present values of derivative positions, including forward exchange contracts, discounted using current interest rates and valued at current spot rates. An SPD may select the yield curve for the purpose of present value adjustments, provided the same is selected in a manner which is representative of the funding cost. An SPD shall have an internal policy approved by its Asset Liability Committee (ALCO) regarding the yield curve / (s) to be used and apply it on a consistent basis.
Measuring the foreign exchange risk in a portfolio of foreign currency positions and gold
(11) For measuring the foreign exchange risk in a portfolio of foreign currency positions and gold, an SPD shall use a shorthand method which treats all currencies equally.
(12) Under the shorthand method, the nominal amount (or net present value) of the net position in each foreign currency and in gold is converted at spot rates into the reporting currency. The overall net open position is measured by aggregating:
(i) the sum of the net short positions or the sum of the net long positions, whichever is greater; plus
(ii) the net position (short or long) in gold, regardless of sign.
Explanation: The spot rates to be used for this purpose shall be determined based on the extant FEDAI guidelines.
(13) Transactions undertaken by an SPD till the end of business day shall be included for calculation of Net Open Position. The transactions undertaken after the end of business day may be taken into the positions for the next day. For this purpose, an SPD may define its own end of business day timings but the same shall be determined as per a duly approved internal policy and followed on a consistent basis.
(14) Under the Standardised approach, the capital requirement for foreign exchange positions, including gold, shall be 15 per cent of the overall net open position computed using the shorthand method. This capital requirement is in addition to the capital requirement for credit risk, interest rate risk or any other risks on the on-balance sheet and off-balance sheet items pertaining to foreign exchange and gold transactions.
Illustration: See example in Table below.
| Table: Example of the shorthand measure of foreign exchange risk | ||||||
| JPY | EUR | GBP | CAD | USD | Gold | |
| Net position per currency | +50 | +100 | +150 | -20 | -180 | -35 |
| Net open position | +300 | -200 | 35 | |||
The capital requirement, under the standardised approach, will be 15 per cent of the overall net open position. Thus, the capital requirement would be 15 per cent of the higher of either the net long currency positions or the net short currency positions (i.e., 300) and of the net position in gold (35) = 335 x 15 per cent = 50.25.’
ii) Paragraph 93 of the extant instructions stands deleted.
(Sunil T S Nair)
Chief General Manager
