The new norms have higher risk weights for longer-tenor and more volatile instruments such as commodities and equities.
The new proposed norms have the add-on factors used in the Current Exposure Method (CEM) for calculating Potential Future Exposure (PFE).
This move aims to align domestic norms with global Basel standards, enhancing risk sensitivity and regulatory clarity.
Earlier the add-on factors for PFE were static and less granular, not fully aligned with Basel Committee on Banking Supervision (BCBS) recommendations.
Also, in the past these rules applied broadly across banks, with limited differentiation based on contract type or tenor.The revised draft norms have granular add-on factors now which differ according to the type of contract such as interest rate, exchange rate, equities, commodities. It also differs as per the tenor of the contract up to one year, between one and five years, and above 5 years.The add-on factors on interest rate contracts range from 0.25% to 1.50%, for exchange rate and gold ranges from 1% to 7.50%, for equities from 6% to 10%, for precious metals, excluding gold from 7% to 8% and for other commodities from 10% to 15%.
RBI has invited comments on the draft circular from the banks, market participants, and other interested parties by September 10.