RBIs amended Capital Adequacy Guidelines applicable from April 1, 2024

The Reserve Bank of India (RBI) has amended Capital Adequacy Guidelines which is going to be applicable from April 1, 2024.

As you are aware, the Master Direction – Classification, Valuation, and Operation of Commercial Banks’ Investment Portfolio (Directions), 2023, dated September 12, 2023 (hereinafter referred to as the ‘MD on Investment’), among other things, establishes a clearly identifiable trading book under the ‘Held for Trading (HFT)’ accounting sub-classification and introduces an AFS-reserve as part of regulatory capital. In light of the aforementioned changes, it has been determined to revise the capital adequacy requirements in accordance with the MD on Investment.

Accordingly, the provisions of Master Circular – Basel III Capital Regulations have been modified.

It should be noted that the ‘Draft Guidelines on Minimum Capital Requirements for Market Risk – under Basel III’, which includes the ‘Definition of Trading Book’ and the ‘Market Risk Capital Requirements – Simplified Standardised Approach’, was released for public comment on February 17, 2023. While the revised definition of the trading book for capital adequacy will be as provided in Annex I of MD on Investment, the final guidelines on ‘Market Risk Capital Requirements – Simplified Standardised Approach’ will be implemented later, with detailed guidelines issued separately.

Considering the transition to ‘Market Risk Capital Requirements – Simplified Standardised Approach’, the extant market risk capital requirements have also been recalibrated by introducing intermediate scalers. Banks should keep this in view while reviewing their strategies and capital planning measures.

These instructions shall be applicable from April 1, 2024, to all Commercial Banks (excluding Regional Rural Banks).

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