India's central bank issues revised rules on banks computation of FX risk exposure

MUMBAI: India’s central bank on Wednesday issued final rules governing how banks calculate their net foreign exchange exposure and the capital needed to be set aside against potential FX risk.

The Reserve Bank of India had proposed changes to the rules earlier this year. The changes were intended to better align regulations with global norms and ensure consistent implementation across regulated entities.

Under the new rules, the central bank has removed the separate calculation of onshore and offshore net open positions for banks while also allowing them to exclude certain “structural” FX positions from the net open position calculations.

Indian rupee cushioned by central bank hand even as dollar strength dents Asia FX

Following stakeholder feedback, the RBI tweaked portions of the proposed rules while also issuing clarifications on other parts.

The central bank has clarified that banks have the option to exclude certain structural foreign currency investments from the calculation of net open position on both a standalone and consolidated basis.

While the proposed rules had said that banks would need to use net present values of derivative positions, the central bank has modified the final regulations to allow lenders to use current spot rates, without present value adjustment, for measuring derivative positions.

India financial crime agency flags forex breaches, missing records at Rajesh Exports

The RBI also said it has not acceded to other requests from regulated entities - such as extension of the implementation timeline and not requiringa capital charge for net open position on consolidated basis.

The rules are slated to go into effect from April 1, 2027.