Reserve Bank of India (Urban Co-operative Banks - Prudential Norms on Capital Adequacy) Third Amendment Directions, 2026

Document text

RBI/2026-27/159 DOR.MRG.REC.No.145/21-01-002/2026-27 June 24, 2026 Reserve Bank of India (Urban Co-operative Banks - Prudential Norms on Capital Adequacy) Third Amendment Directions, 2026 Please refer to Annex I of the FMRD Master Direction - Risk Management and Inter-Bank Dealings (Master Direction No. 1/2016-17 dated July 5, 2016) and paragraphs 17 and 20 of the Reserve Bank of India (Urban Co-operative Banks - Prudential Norms on Capital Adequacy) Directions, 2025 dated November 28, 2025 , which specify the methodology for computation of Net Open Position and calculation of capital charge on foreign exchange risk. Upon a review and to ensure consistent implementation across Urban Co-operative Banks, there is a felt need to amend these instructions. 2. Accordingly, in exercise of the powers conferred by Section 35A read with Section 56 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 RBI 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 (Urban Co-operative Banks - Prudential Norms on Capital Adequacy) Third Amendment Directions, 2026. (ii) These Amendment Directions shall come into effect from April 1, 2027. 4. The Reserve Bank of India (Urban Cooperative Banks - Prudential Norms on Capital Adequacy) Directions, 2025 are amended as provided below. (i) Sub-paragraph 20(18) shall be substituted by the following, namely: – “20(18) A UCB shall compute the capital charge for foreign exchange risk and gold open positions as per the following method. Scope of Application (i) A UCB 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) A UCB shall not apply foreign exchange risk capital requirement to any position that is deducted from the bank’s regulatory capital, including a position that is hedging such a position. (iii) A UCB 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, a UCB shall include all positions, within the ‘Scope of Application’ above, in foreign currencies, including gold, regardless of whether these are in the trading book or banking book. For this purpose, trading book includes all instruments that are classified as ‘Held for Trading’ or ‘Available for Sale’ as per Reserve Bank of India (Urban Co-operative 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 position as set out in sub-paragraphs (vi) to (xii) below. (b) Measure the risks inherent in a UCB’s mix of long and short positions in different currencies as set out in sub-paragraphs (xiii) to (xviii). Measuring the exposure in a single currency (vi) The UCB’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 UCB, 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) Options are also subject to a separately calculated capital requirement for gamma and vega risks as described in sub-paragraph 21(7)(i). Alternatively, options and their associated underlying are subject to one of the other methods described in sub-paragraph 21(7)(ii). (viii) The net forward position includes: (a) tom and spot transactions which are not yet settled; (b) forward and futures transactions; and (c) principal on cross-currency swaps and any other forex derivative transactions not included in the spot position. (ix) 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. (x) Where gold is part of a forward contract (quantity of gold to be received or to be delivered), any interest rate or foreign currency exposure from the other leg of the contract shall be reported as set out in sub-paragraphs 20(4) to 20(14) and sub-paragraph (vi) above. (xi) 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 UCB has taken the opportunity to hedge them. If a UCB 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. (xii) Measurement of derivative positions: A UCB shall use the current spot rates, without present value adjustment, for measuring derivative positions. Measuring the foreign exchange risk in a portfolio of foreign currency positions and gold (xiii) For measuring the foreign exchange risk in a portfolio of foreign currency positions and gold, a UCB shall use a shorthand method which treats all currencies equally. (xiv) Under the shorthand method, the nominal amount 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, whichever is greater; plus (b) the net position (short or long) in gold, regardless of sign. (xv) A UCB shall use the spot rates based on financial benchmarks administered by benchmark administrators authorised under the relevant directions issued by FMRD. (xvi) Transactions undertaken by a UCB 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, a UCB 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. (xvii) The capital requirement for foreign exchange positions, including gold, shall be 9 per cent of the overall Net Open Position computed using the shorthand method. This capital requirement is in addition to the capital requirement for credit risk, interest rate risk or any other risks on the on-balance sheet and off-balance sheet items pertaining to foreign exchange and gold transactions. Illustration: See example in Table below. Table: Example of the shorthand measure of foreign exchange risk JPY EUR GBP CAD USD Gold Net position per currency +50 +100 +150 -20 -180 -35 Net Open Position +300 -200 35 The capital requirement will be 9 per cent of the overall Net Open Position. Thus, the capital requirement would be 9 per cent of 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 x 9 per cent = 30.15. (xviii) A UCB which is subject to the Master Direction – Risk Management and Inter-Bank Dealings, as amended from time to time, shall be guided by the Direction ibid, and related directions, for other instructions related to Net Open Position, including inter alia, reporting, applicable limit, and limit for Net Open Position involving Rupee as one of the currencies (NOP-INR).”. (ii) Sr. No. V in the Table under paragraph 17(1) shall be substituted by the following, namely: – “ V Market Risk on Net Open Position (excluding AD category I UCBs) Notes: (i) A UCB may refer to paragraph 20(18) for calculation of Net Open Position. (ii) Risk weights on Net Open Position from foreign exchange positions would be applicable only for UCBs which are Authorised Dealers. Other UCBs may calculate the risk weights on Net Open Position by considering only the Net Open Position from gold. 100 ”. (Sunil T S Nair) Chief General Manager