The Reserve Bank of India has issued comprehensive new banking regulations for calculating capital charges on foreign exchange risk, marking a significant shift toward continuous risk monitoring and international alignment. The central bank released these enhanced requirements on Wednesday, mandating that banks compute foreign exchange risk capital requirements on a continuous basis at both consolidated and standalone levels.

Enhanced Capital Requirements and Daily Monitoring

The updated framework introduces stringent daily monitoring requirements that represent a departure from previous practices:

Structural Position Exclusions with Strict Conditions

Under the revised framework, banks may exclude specific "structural" foreign exchange positions from net open position calculations, subject to stringent conditions. The RBI emphasized that this methodology must be comprehensively documented in the bank's risk management policy for structural foreign exchange positions. These exclusions encompass:

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

Technical Modifications to Calculation Methods

The proposed changes introduce several technical enhancements to existing calculation methodologies. The draft amendments specifically target provisions governing net open position calculations and associated capital charges for foreign exchange risk. Banks will need to include all accumulated surplus or un-remitted surplus from overseas operations under net spot position calculations, ensuring comprehensive risk capture.

Implementation Timeline and Stakeholder Engagement

The Reserve Bank of India has established April 1, 2027, as the effective date for these regulations, providing banks with adequate preparation time for system modifications and compliance frameworks. The central bank has invited comments on the draft amendments, emphasizing the goal of creating internationally consistent foreign exchange risk governance standards across India's banking sector.

The RBI's enhanced framework represents a significant step toward aligning domestic currency risk management practices with global regulatory standards while ensuring robust daily monitoring of foreign exchange exposures.

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 enables SMBC to convert its existing branches in India into a wholly owned subsidiary structure, providing greater operational flexibility for serving the Indian market. The approval comes as SMBC holds close to a 25% stake in Yes Bank, most of which it acquired recently.

Current Operations and Strategic Positioning

SMBC currently operates its banking business in India through four strategically located branches in New Delhi, Mumbai, Chennai, and Bengaluru, in addition to a branch at the International Financial Services Centre (IFSC) in GIFT City, Gujarat. The RBI approval allows the Japanese bank to convert these existing branches into a wholly owned subsidiary structure.

Yes Bank Connection and Market Implications

The move to transition from a branch-based presence to a full-fledged subsidiary could enable SMBC to acquire a majority stake in Yes Bank. Reports suggest that once the Japanese lender secures approval to operate as a wholly owned subsidiary, State Bank of India and other banks are likely to sell their remaining combined stake of nearly 14% in Yes Bank to SMBC. However, Yes Bank has denied that any such plan is under way.

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.