RBI Proposes Changes to Banks’ Foreign Exchange Position Rules

Review of Net Open Position Framework​

The Reserve Bank of India has proposed changes to the rules governing banks’ foreign exchange positions, aiming to refine the framework used to measure and manage currency risk across the banking system.

The amendments follow a comprehensive review of the existing instructions related to the net open position framework, which captures the difference between a bank’s total foreign currency assets and liabilities and reflects its exposure to exchange rate movements.

Alignment with Global Banking Standards​

The proposed guidelines are designed to bring the domestic framework closer in line with standards followed internationally by major banking regulators. The central bank has also indicated that the revised norms will be implemented uniformly across all regulated entities to ensure consistency in forex risk management practices.

Key Proposed Revisions​

Under the proposed changes, banks will no longer be required to maintain separate calculations for offshore and onshore net open positions. Instead, accumulated surplus arising from overseas operations will be included directly within the overall net open position.

The proposals also retain the requirement to maintain a forex risk capital charge based on the actual net open position. In addition, the shorthand method used for calculating net open position will be modified to align with global practices, including the separate treatment of open positions in gold.

Structural Forex Positions Exemption​

The central bank has also proposed a provision that allows certain structural foreign exchange positions to be exempted from the net open position calculation. This move is aimed at better reflecting the underlying nature of long-term forex exposures held by banks.

The proposed changes mark a step towards a more streamlined and globally aligned approach to managing foreign exchange risk within the banking sector.