The Reserve Bank of India (RBI) has released draft Amendment Directions proposing significant revisions to prudential norms on capital adequacy related to foreign exchange and gold price risk for Urban Co-operative Banks (UCBs) and Rural Co-operative Banks (RCBs).
The move is aimed at strengthening risk management practices and ensuring uniform implementation of regulatory standards across the co-operative banking sector.
The draft amendments have been issued through two separate notifications-Reserve Bank of India (Urban Co-operative Banks – Prudential Norms on Capital Adequacy) Amendment Directions, 2026 and Reserve Bank of India (Rural Co-operative Banks – Prudential Norms on Capital Adequacy) Amendment Directions, 2026.
These proposals seek to amend existing instructions under the Master Direction on Risk Management and Inter-Bank Dealings, as well as the Prudential Norms on Capital Adequacy Directions, 2025, applicable to co-operative banks.
According to the RBI, the proposed changes are intended to ensure consistent and robust implementation of Net Open Position (NOP) norms and foreign exchange risk capital requirements across the co-operative banking system. The regulator noted that disparities in the application of these norms necessitated clearer guidelines and enhanced prudential oversight, especially in the context of increasing exposure to foreign exchange and gold-related risks.
A key feature of the draft directions is the requirement that UCBs and RCBs maintain capital for foreign exchange risk on a continuous basis, specifically at the close of each business day. This marks a shift towards more dynamic capital monitoring, ensuring that banks remain adequately capitalised against market risks on an ongoing basis rather than at periodic intervals.
The draft also lays down a detailed and standardised methodology for computing the Net Open Position. This computation will encompass spot positions, forward contracts, derivative exposures, and gold positions. However, positions that are already deducted from regulatory capital, along with securities classified as non-performing assets, will be excluded from the calculation of foreign exchange risk capital requirements. This clarification aims to prevent double counting of risk and improve accuracy in capital assessment.
Importantly, the RBI has clarified the scope of applicability of these requirements. Foreign exchange risk capital norms will apply only to Authorised Dealer (AD) co-operative banks. Other co-operative banks that are not authorised dealers will not be required to maintain capital for foreign exchange risk but must compute and hold capital for net open positions arising from gold exposure.
The proposed amendments are slated to come into effect from April 1, 2027, subject to finalisation after stakeholder consultation. In line with its consultative approach, the RBI has invited comments and feedback from stakeholders, including co-operative banks and industry bodies, until February 3, 2026.
Once implemented, the revised norms are expected to enhance resilience in the co-operative banking sector by improving risk sensitivity, strengthening capital buffers, and aligning co-operative banks more closely with broader regulatory best practices.
