RBI Update- Reserve Bank of India (Local Area Banks - Prudential Norms on Capital Adequacy) Amendment Directions, 2026

The Reserve Bank of India has issued the Reserve Bank of India (Local Area Banks – Prudential Norms on Capital Adequacy) Amendment Directions, 2026, effective from 1 April 2027, revising the framework for computation of capital charge on foreign exchange risk to align with international standards and promote consistency across Local Area Banks (LABs). The amended directions require LABs to maintain capital for foreign exchange risk on a continuous basis at the close of each business day and prescribe a detailed methodology for calculating Net Open Position (NOP) across all foreign currency and gold exposures in both the banking and trading books. Certain positions, including those deducted from regulatory capital and non-performing or matured unpaid securities, are excluded from forex risk capital requirements. The revised framework sets out the treatment of spot, forward, derivative, guarantee, future income and expense positions, as well as gold exposures, for determining NOP. LABs are required to calculate overall NOP using the prescribed shorthand method, under which the higher of aggregate net long or net short currency positions, together with the net gold position, forms the basis for computing the capital charge. The capital requirement for foreign exchange and gold positions will continue to be 9% of the overall NOP, in addition to capital requirements for credit risk, interest rate risk and other applicable risks.