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RBI finalises norms for banks to hold capital for operational risks
June 27, 2023
The Reserve Bank of India (RBI) has finalised directions for commercial banks to hold sufficient regulatory capital against their exposures arising from operational risks.
It would cover the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events.
RBI, in a communication to regulated entities, said the effective date for implementation of these directions will be communicated separately.
Entities like local area banks, payment banks, regional rural banks, and small finance banks are excluded from the application of these norms for operational risk capital.
While legal risks would form part of operational risks, the strategic and reputational risks are excluded from the ambit of calculating capital requirements.
RBI had issued draft norms ‘Master Direction on Minimum Capital Requirements for Operational Risk’ on December 15, 2021, as a part of convergence with Basel III standards.
The existing norms for measuring minimum operational risk capital (ORC) will be replaced by the new standardised approach under Basel III when the directions come into effect.
At present, banks use methods like basic indicator approach (BIA) and the standardised approach (TSA) to measure minimum ORC.
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