RBI Deputy Governor Rohit Jain has emphasized that technology is no longer merely an enabler for banks but is becoming their 'risk architecture', making technological resilience as important as financial resilience. Speaking at the SBI Banking Conclave, Jain warned that a failure in a critical technology system can disrupt essential financial services even when a bank remains financially sound. He urged banks to treat technology risk as a first-order enterprise risk, with stronger governance, cybersecurity, third-party oversight and AI controls. As per The Hindu BusinessLine, banks must recognise technology risk, and more specifically technology architecture risk, as a first-order enterprise risk, comparable in importance to traditional balance-sheet risks. The expanding technology perimeter means banks cannot outsource accountability along with technology, requiring institutions to understand risks around access controls, concentration, recoverability, data protection and exit options. Technology may be outsourced, but not the accountability - a bank may rely on external providers for infrastructure, software or cybersecurity capabilities, but must continue to understand associated risks.
The Reserve Bank of India has issued the final Reserve Bank of India (Commercial Banks - Minimum Capital Requirements for Market Risk) Directions, 2026, marking the completion of the regulatory framework development process. According to the RBI's announcement on September 21, 2026, these Directions represent the final version of guidelines that were first introduced in April 2023 and have undergone extensive consultation and refinement. The framework adopts the Simplified Standardised Approach (SSA) for computing capital requirements for market risk under the revised Basel III framework, providing banks with a streamlined approach to meet regulatory requirements. As reported by The Financial Express, the RBI emphasized that this move is part of its adoption of the Basel standards, while ensuring simplicity of regulations, and providing flexibility, and ease of adoption. The Directions will take effect from April 1, 2027, providing banks with sufficient lead time to prepare for the transition. To ensure smooth transition, intermediate transition scalars have been in effect since April 1, 2024.
Banks in India will face revised capital requirements under the RBI's new market-risk framework effective April 2027, with the impact expected to be particularly sharp in portfolios where regulatory capital directly influences business profitability. According to The Financial Express, the impact could be significant for portfolios where capital consumption directly influences business profitability and pricing, with industry experts noting that higher capital requirements could reduce risk-adjusted returns and constrain inventory levels. Banks with sizeable trading books are likely to see the largest absolute impact, particularly those with significant equity holdings, opaque fund exposures and certain bank capital instruments. However, banks with smaller, government-security-dominated and well-hedged portfolios could face a more moderate capital impact, though they would still bear implementation costs. A treasury official at a private sector bank expects the overall increase in capital consumption to be modest, with the bigger change being more comprehensive risk assessment capabilities.
The final Directions introduce specific risk capital charge revisions for interest rate risk, aligning with Basel Committee on Banking Supervision (BCBS) guidelines for more concise treatment. According to The Financial Express, specific risk tables for interest rate risk have been revised to align with the Basel Committee on Banking Supervision (BCBS) guidelines, which also provides a more concise and clean treatment. Debt mutual funds and exchange traded funds (ETF) held in the trading book now receive revised capital treatment based on the underlying risk drivers while ensuring sufficient guardrails. The framework also includes specific risk capital requirements for positions hedged by credit derivatives, incorporating treatment for positions hedged by total return swaps permitted under Master Direction - Reserve Bank of India (Credit Derivatives) Directions, 2026. Additionally, the RBI has prescribed an SSA for calculating market-risk risk-weighted assets, covering three broad risk classes: interest-rate risk, equity risk and foreign-exchange risk. The risk-weighted assets will be determined by multiplying the capital requirements calculated under the framework by a factor of 12.5.
The revised framework places greater emphasis on transparency of fund portfolios, with banks needing greater visibility into the underlying holdings of debt funds and ETFs to assess relevant risks. As reported by The Financial Express, funds with mixed exposures or limited disclosure could attract higher capital requirements, making timely information on portfolio composition, credit ratings and maturities more important for both investment and capital-management decisions. The rules also revise the treatment of positions hedged through credit derivatives to include total-return swaps permitted under the RBI's 2026 directions on credit derivatives. Another key change involves internal risk transfers, where banks would have to distinguish more clearly between internal and external transfers of risk, with internal risk transfers used for hedging needing to be backed by external counterparties. The RBI has also removed separate instructions defining the trading book, since its investment directions already provide for a clearly identifiable trading book under the held-for-trading classification.
The framework establishes continuous compliance requirements where banks must meet market-risk capital requirements at the close of each business day. As reported by The Financial Express, the RBI has provided flexibility for banks to hedge risk in the banking book either directly through an external hedge or through internal risk transfer. The framework also addresses foreign exchange risk management, with the RBI having the option to exclude certain structural foreign currency investments from the calculation of Net Open Position (NOP) on both standalone and consolidated basis. Banks may opt to exclude structural foreign exchange positions from NOP on a case-to-case basis, provided they comply with certain criteria including that the exclusion is made for at least six months, among other requirements. The framework also incorporates revised instructions on net open positions and foreign exchange risk capital charges, in line with the RBI's Commercial Banks – Prudential Norms on Capital Adequacy Tenth Amendment Directions, 2026.
Strengthening capital standards for market risk aligns with the broader regulatory objective of making the banking system more resilient and better able to withstand shocks. The RBI emphasized that these norms will strengthen the banking sector's financial stability and risk-bearing capacity during periods of systemic stress. According to The Financial Express, the revised framework brings India's market-risk regulations closer to global Basel standards and gives banks a more standardised and transparent basis for measuring and capitalising trading-book risks. As per EY India's Ashish Bhalerao, partner, financial services risk consulting, banks that begin their impact assessments now, particularly around the boundary between banking and trading books, and how internal risk transfers are documented, will be far better positioned when the framework takes effect in April 2027. The comprehensive framework ensures that banks maintain adequate capital against potential losses from market volatility while enabling more effective management of market risk.
