Reserve Bank of India (Regional Rural Banks - Prudential Norms on Capital Adequacy) Amendment Directions, 2026 - Draft

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