Featured Product

    RBI Circular Addresses Measurement of Capital Charge for Market Risk

    August 06, 2020

    RBI issued a circular that addresses the treatment of debt mutual funds/exchange-traded funds (ETFs) while computing capital charge for market risk under the Basel III capital regulations. According to Para 8.4.1 of the Master Circular on Basel III capital regulations, capital charge for equities is applicable to units of mutual funds. This recent circular details the RBI decision on computation of capital charge for market risk for the banks investing in a debt mutual fund/ETF with underlying comprising the Central, State, and Foreign Central Governments’ bonds; bank bonds; and corporate bonds (other than bank bonds).

    Under the Basel III capital rules in the Master Circular, the minimum capital requirement is expressed in terms of two separately calculated charges. One is the "specific risk" charge for each security, which is designed to protect against an adverse movement in the price of an individual security owing to factors related to the individual issuer, both for short (short position is not allowed in India except in derivatives and Central Government Securities) and long positions. The other is the "general market risk" charge toward interest rate risk in the portfolio, where long and short positions (which is not allowed in India except in derivatives and Central Government Securities) in different securities or instruments can be offset. The circular covers the following points with respect to the computation of capital charge for market risk:

    • Investment in debt mutual fund/ETF, for which full constituent debt details are available, shall attract general market risk charge of 9%, as hitherto. Additionally, the Annex to this recent circular details the application of specific risk capital charge for exposures to securities issued by Indian and foreign sovereigns, bonds issued by banks, and corporate bonds (other than bank bonds).
    • In case of debt mutual fund/ETF, which contains a mix of the debt instruments, the specific risk capital charge shall be computed based on the lowest rated debt instrument or instrument attracting the highest specific risk capital charge in the fund.
    • Debt mutual fund/ETF, for which constituent debt details are not available, at least as of each month-end, shall continue to be treated on par with equity for computation of capital charge for market risk, as prescribed in Para 8.4.1 of the Master Circular on Basel III capital regulations.

    Keywords: Asia Pacific, India, Banking, Basel, Regulatory Capital, Market Risk, Mutual Funds, ETF, RBI

    Featured Experts
    Related Articles
    News

    EBA Updates Filing Rules for Supervisory Reporting

    The European Banking Authority (EBA) published version 5.1 of the filing rules for supervisory reporting.

    October 19, 2021 WebPage Regulatory News
    News

    ECB Amends Guideline on Procedures for Collection of AnaCredit Data

    The European Central Bank (ECB) Guideline 2021/1829 on the procedures for the collection of granular credit and credit risk data has been published in the Official Journal of European Union.

    October 19, 2021 WebPage Regulatory News
    News

    ECB Amends Guideline on Procedures for Collection of AnaCredit Data

    The European Central Bank (ECB) Guideline 2021/1829 on the procedures for the collection of granular credit and credit risk data has been published in the Official Journal of European Union.

    October 19, 2021 WebPage Regulatory News
    News

    EBA Publishes Standards on Disclosure of Investment Policy Under IFR

    The European Banking Authority (EBA) published the final draft regulatory technical standards on disclosure of investment policy by investment firms, under the Investment Firms Regulation (IFR).

    October 19, 2021 WebPage Regulatory News
    News

    APRA Finalizes Guidance for New Prudential Standard on Remuneration

    The Australian Prudential Regulation Authority (APRA) published the prudential practice guide CPG 511 to assist banks, insurers, and superannuation licensees in meeting requirements of CPS 511, the new prudential standard on remuneration.

    October 18, 2021 WebPage Regulatory News
    News

    OCC Updated LIBOR Self-Assessment Tool for Banks

    The Office of the Comptroller of the Currency (OCC) published a bulletin that provides an updated self-assessment tool for banks to evaluate their preparedness for cessation of the London Interbank Offered Rate (LIBOR).

    October 18, 2021 WebPage Regulatory News
    News

    TCFD Updates Guidance for Financial Disclosures on Climate Risk

    The Financial Stability Board (FSB) published a report that examines the progress made toward disclosures aligned with recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).

    October 14, 2021 WebPage Regulatory News
    News

    BCBS Report Examines Progress on Adoption of Basel III Framework

    The Basel Committee on Banking Supervision (BCBS) published the progress report on adoption of the Basel III regulatory framework in member jurisdictions.

    October 14, 2021 WebPage Regulatory News
    News

    ACPR Implements Updates Related to DPM Version 3.1

    The French Prudential Supervisory Authority (ACPR) has implemented, in its information system, updates linked to the Data Point Model (DPM) version 3.1.

    October 14, 2021 WebPage Regulatory News
    News

    EBA Note Examines Transition Risks of Benchmark Rates

    The European Banking Authority (EBA) published a thematic note that aims to identify and raise awareness of the transition risks of benchmark rates, as the London Interbank Offered Rate (LIBOR) and the Euro Overnight Index Average (EONIA) are close to being phased out.

    October 14, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 7571