**Executive Summary**
The Reserve Bank of India (RBI) is issuing amendment directions concerning prudential norms on capital adequacy for Regional Rural Banks (RRBs). These directions, effective from April 1, 2027, amend the "Reserve Bank of India (Regional Rural Banks - Prudential Norms on Capital Adequacy) Directions, 2025" to ensure consistent implementation across RRBs, particularly regarding capital requirements for foreign exchange and gold open positions. The document is currently in a draft phase for comments.
**Key Points / Main Content**
* **Amendment Title:** Reserve Bank of India (Regional Rural Banks - Prudential Norms on Capital Adequacy) Amendment Directions, 2026.
* **Effective Date:** April 1, 2027.
* **Amendment Details:**
* The existing directions are amended to modify the table under paragraph 15(1), specifically S.No. V, related to Market Risk on Net Open Position.
* The amended directions include the following new guidelines for calculating the Net Open Position for foreign exchange risk:
* RRBs must meet the capital requirements for foreign exchange risk on a continuous basis, i.e., at the close of each business day.
* Positions deducted from an RRB's regulatory capital and those hedging such positions are excluded.
* Securities already matured/unpaid or classified as non-performing assets/investments are excluded from forex risk capital requirements but attract capital for credit risk.
* The RRB must include all positions within the ‘Scope of Application' in foreign currencies (including gold) for calculating the capital requirement for foreign exchange risk, regardless of whether these are in the trading or banking book.
* Net Open Position Calculation:
* Measure exposure in a single currency according to set paragraphs.
* An RRB's net open position in each currency is calculated by summing specified items, including spot and forward positions, guarantees, and other items.
* Net forward position includes tom and spot transactions, forward and futures transactions, and currency swaps.
* Positions in composite currencies must be maintained separately.
* Positions in gold are expressed in standard units of measurement and valued at current spot rates.
* Treatment of Interest and Expenses:
* Accrued interest and expenses are included as a spot position.
* Unearned future interest and anticipated expenses may be excluded if uncertain and the RRB has not hedged them.
* Measurement of Derivative Positions:
* RRBs use net present values of derivative positions, discounted using current interest rates and valued at current spot rates.
* Foreign Exchange Risk in a Portfolio:
* A shorthand method is used, treating all currencies equally, where the nominal amount is converted at spot rates into the reporting currency.
* Transactions included for the day of business closing is specified.
* The Net Open Position is risk-weighted at 100 percent.
**Impact Analysis**
**Stakeholder:** Regional Rural Banks (RRBs)
**Impact:** RRBs will need to comply with the revised prudential norms for capital adequacy, particularly concerning the calculation and management of foreign exchange and gold open positions. The directions aim to ensure consistent implementation and address capital requirements more effectively.
**Action Required:** RRBs need to review and update their internal policies and procedures to align with the new amendment directions, including methods for calculating net open positions, treatment of interest and expenses, and measurement of derivative positions. They should also define their end of business day timings as per a duly approved internal policy.
Key Entities Referenced
Reserve Bank of India: The central bank of India, issuing the directions.
Regional Rural Banks: The type of banks to which the directions apply.
Reserve Bank of India (Regional Rural Banks - Prudential Norms on Capital Adequacy) Directions, 2025: The original directions being amended by this document.
Banking Regulation Act, 1949: The Act that gives the Reserve Bank of India the power to issue these directions.
Reserve Bank of India (Regional Rural Banks - Classification, Valuation, and Operation of Investment Portfolio) Directions, 2025: Referenced policy document related to classification, valuation and operation of investment portfolio.
भारतीय ररज़र्व बैंक
RESERVE BANK OF INDIA
_________________________ ______________________
www.rbi.org.in
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:
वर्वियमि वर्भाग,केंद्रीय कायावलय, 12 र्ी ींऔर 13 र्ी ींमींविल, केंद्रीय कायावलय भर्ि, शहीद भगत व ींह मागव,फोर्व,म ींबई-400001
दूरभाष: 022-22601000 फैक्स: 022-22705691 ई-मेल: cgmicdor@rbi.org.in
_____________________________________________________________________________________________________________________________________
Department of Regulation, Central Office, 12th and 13th Floor, Central Office Building, Shahid Bhagat Singh Marg, Fort, Mumbai- 400 001
Tel: 022- 2260 1000 Fax: 022-2270 5691 email: cgmicdor@rbi.org.in
वहींदी आ ाि है इ का प्रयोग बढाइएV Market Risk on Net Open Position (applicable to on balance 100
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.
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
2classified 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
3measuring 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,
4whichever 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
5