RBI Proposes Higher Capital Charges On Banks' Forex And Gold Positions

(MENAFN- KNN India) New Delhi, Jan 16 (KNN) The Reserve Bank of India has proposed stricter capital requirements to limit banks' exposure to volatility in foreign exchange and bullion markets, by prescribing higher capital charges on open positions, as per draft norms issued for public consultation.

Under the draft norms, banks must maintain a 9 percent capital charge on net open foreign exchange and gold positions from April 1, 2027, aligning Indian rules with global standards and curbing excessive risk-taking, reported The Times Of India.

Introduction of a Flat 'Safety Buffer'

Banks will be required to hold capital equal to 9 percent of their total net open position, over and above existing capital charges for credit and interest rate risks.

The RBI said the proposal streamlines risk measurement under the capital adequacy framework but may marginally increase borrowing, hedging and remittance costs as banks adjust to higher capital requirements.

Under the standardised shorthand method, banks will compute net long and net short positions for each currency, with the overall open position taken as the higher of the absolute net long or net short across all currencies, plus the net gold position.

The draft provides that gold exposures will be treated on par with foreign currency positions, with a bank's net gold position, spot or forward, added to its foreign exchange exposure for assessing overall risk.

RBI said banks will be required to maintain capital for gold holdings on the same basis as for volatile foreign currencies such as the dollar and the euro.

Operational Flexibility for Banks

The draft allows operational flexibility by permitting banks to set their own 'end of business day' for calculating open positions, in line with board-approved internal policies.

Transactions executed after the cut-off may be carried forward and accounted for in the next day's positions, a step the RBI said would help banks better manage time-zone differences and late-hour trading.

(KNN Bureau)

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