**Executive Summary**
The Reserve Bank of India (RBI) issues Amendment Directions to the "Reserve Bank of India (Regional Rural Banks - Prudential Norms on Capital Adequacy) Directions, 2025" concerning capital requirements for foreign exchange and gold open positions. The amendments aim to ensure consistent implementation across Regional Rural Banks (RRBs). The Amendment Directions come into effect on April 1, 2027.
**Key Points / Main Content**
* **Amendment Title and Implementation:**
* The instructions are called the "Reserve Bank of India (Regional Rural Banks - Prudential Norms on Capital Adequacy) Amendment Directions, 2026."
* These directions come into effect on April 1, 2027.
* **Amendment to Existing Directions:**
* In the existing directions, S.No. V in the Table under paragraph 15(1) is substituted, setting the "Market Risk on Net Open Position" risk weight at 100, applicable to on-balance sheet and off-balance sheet items. This applies only to Authorized Dealers among RRBs. Other RRBs may only consider net open gold positions.
* Paragraph 15(6) is inserted after paragraph 15(5) for the "Computation of Net Open Position for Foreign Exchange Risk," clarifying the scope of application and exclusions.
* **Computation of Net Open Position for Foreign Exchange Risk (Paragraph 15(6)):**
* RRBs must meet capital requirements for foreign exchange risk continuously.
* Positions deducted from regulatory capital or hedging such positions are excluded.
* Forex risk capital requirements do not apply to matured/unpaid or non-performing securities, which attract only credit risk capital.
* Calculation includes all positions in foreign currencies, including gold, in both trading and banking books.
* **Calculating Net Open Position:**
* Exposure in a single currency is measured, accounting for spot, forward positions, guarantees, net future income/expenses, and foreign currency options.
* The net forward position includes tom and spot transactions, forward/futures transactions, and currency swaps.
* Positions in composite currencies are maintained separately.
* **Gold Positions and Interest/Expenses:**
* Gold positions are expressed in standard units and valued at spot rates.
* Accrued interest/expenses are included as spot positions; unearned/anticipated expenses may be excluded if not hedged.
* **Derivative Positions and Risk Measurement:**
* Derivative positions are measured using net present values.
* The methodology for measuring foreign exchange risk in a portfolio of foreign currency positions and gold is described.
* **Transactions and Risk Weighting:**
* Transactions till the end of the business day are included.
* The Net Open Position is risk-weighted at 100% as prescribed in paragraph 15(1).
**Impact Analysis**
**Stakeholder: Regional Rural Banks (RRBs)**
* **Impact:** Affected by changes to capital adequacy requirements for foreign exchange and gold open positions, particularly concerning the calculation of net open positions and risk weighting.
* **Action Required:** RRBs must implement the new guidelines, including adjusting calculations and reporting, establishing internal policies for end-of-day timings, and meeting continuous capital requirements for foreign exchange risk.
**Stakeholder: Reserve Bank of India (RBI)**
* **Impact:** Responsible for enforcing and supervising the implementation of these new guidelines to ensure consistent application and financial stability across RRBs.
* **Action Required:** Monitor RRBs' compliance with the updated directions, provide clarifications as needed, and take appropriate supervisory actions for non-compliance.
Key Entities Referenced
Reserve Bank of India (Regional Rural Banks - Prudential Norms on Capital Adequacy) Amendment Directions, 2026: The main subject of the document, outlining amendments to capital adequacy norms for Regional Rural Banks.
Reserve Bank of India (Regional Rural Banks - Prudential Norms on Capital Adequacy) Directions, 2025: The existing directions being amended by the current document, setting the foundation for capital adequacy of Regional Rural Banks.
Regional Rural Banks (RRBs): The financial institutions primarily affected by these directions.
Banking Regulation Act, 1949, Section 35A: Legal basis for the Reserve Bank of India's authority to issue these directions.
Reserve Bank of India (RBI): The central bank issuing and enforcing these directions.
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