The Reserve Bank of India has announced proposed changes to foreign exchange risk calculation methodologies for banks, seeking to harmonize domestic regulations with international standards. The central bank released these proposals on Wednesday, inviting stakeholder feedback before implementation.

Key Proposed Changes to FX Risk Calculations

The RBI's comprehensive proposal addresses several critical aspects of foreign exchange risk management:

Structural Position Exclusions

Under the new framework, banks may exclude certain "structural" foreign exchange positions from their net open position calculations. These exclusions encompass:

• Foreign-currency denominated investments in subsidiaries
• Investments in overseas branches
• Investments in affiliated but non-consolidated entities

This modification recognizes the different risk profiles of strategic versus trading positions, aligning with global regulatory practices.

Enhanced Calculation Methodology

The proposed changes introduce several technical modifications to existing calculation methods. The "shorthand" method for calculating FX risk will be updated to align with international standards, specifically requiring separate treatment of open positions in gold. Additionally, banks will need to include all accumulated surplus or un-remitted surplus from overseas operations under the net spot position calculations.

Implementation Timeline and Feedback

The Reserve Bank of India has established April 1, 2027, as the effective date for these new regulations, providing banks with adequate time for system modifications and compliance preparation. The central bank emphasized that these proposals aim to ensure consistent implementation across all regulated entities while better aligning Indian banking regulations with global standards.

The RBI's statement highlighted that the proposed changes are designed to create a more comprehensive and internationally consistent framework for foreign exchange risk management in the Indian banking sector.

The Reserve Bank of India has granted in-principle approval to Sumitomo Mitsui Banking Corporation (SMBC) to establish a wholly owned subsidiary in India. This approval marks a significant milestone for the Japanese banking giant's expansion strategy in the Indian market through conversion of its existing branch operations.

Regulatory Approval Framework

The central bank's in-principle approval has been granted under the Reserve Bank of India (Setting up of Wholly Owned Subsidiaries by Foreign Banks) Guidelines, 2025. The approval enables SMBC to convert its existing four branches in India into a wholly owned subsidiary structure, providing greater operational flexibility for serving the Indian market.

Current Operations and Conversion Process

SMBC currently operates its banking business in India through four strategically located branches in New Delhi, Mumbai, Chennai, and Bengaluru. The RBI approval allows the Japanese bank to convert these existing branches into a wholly owned subsidiary structure, which will enable more comprehensive banking services and enhanced local market engagement.

Licensing Requirements

The RBI has indicated that it will consider granting a licence for commencement of banking business in wholly-owned subsidiary mode under Section 22(1) of the Banking Regulation Act, 1949. This final licensing approval is contingent upon SMBC's compliance with all requisite conditions laid down as part of the in-principle approval process.

Strategic Impact on Indian Banking

This development reinforces the growing financial cooperation between Japan and India while adding to the diversity of international banking presence in the country. The conversion from branch operations to a wholly owned subsidiary structure demonstrates RBI's continued openness to foreign banking participation, subject to regulatory compliance and alignment with national banking sector interests.