RBI’s 2026 Capital Adequacy Amendments for Urban Co-operative Banks: Forex & Gold Net Open Position Norms Explained

The Reserve Bank of India has issued the Reserve Bank of India (Urban Co-operative Banks – Prudential Norms on Capital Adequacy) Third Amendment Directions, 2026, which will take effect from April 1, 2027. These Directions substantially reshape how Urban Co-operative Banks (UCBs) must compute their Net Open Position (NOP) in foreign exchange and gold, and how they must calculate related capital charges.

The revised framework aims to ensure uniform adoption, strengthen prudential risk management, and remove ambiguity in the treatment of various types of forex and gold exposures across UCBs.

The amendments are issued under the powers conferred on the Reserve Bank of India by:

  • Section 35A read with Section 56 of the Banking Regulation Act, 1949, and
  • All other enabling provisions under applicable laws.

These new Directions modify:

  • Reserve Bank of India (Urban Co-operative Banks – Prudential Norms on Capital Adequacy) Directions, 2025, and
  • The methodology for NOP and capital charge on foreign exchange risk earlier contained in:
    • Annex I of FMRD Master Direction – Risk Management and Inter-Bank Dealings (Master Direction No. 1/2016-17 dated July 5, 2016); and
    • Paragraphs 17 and 20 of the 2025 Capital Adequacy Directions.

RBI, after reviewing implementation practices across UCBs, found inconsistencies and has therefore issued a comprehensive and standardised method for NOP calculation and capital requirement for forex and gold.

Applicability and Effective Date

  • The Directions are titled:

    “Reserve Bank of India (Urban Co-operative Banks – Prudential Norms on Capital Adequacy) Third Amendment Directions, 2026”

  • They become effective from April 1, 2027.

  • All UCBs must align their internal systems, processes, policies, and reporting frameworks well before this date to comply on a day-one basis.

Core Objective of the Amendment

The amendments serve multiple regulatory purposes:

  • Ensure continuous capital coverage for foreign exchange and gold risk at every close of business day.
  • Mandate a uniform shorthand method for aggregating currency positions.
  • Clarify which items are to be included or excluded from NOP.
  • Define a clear capital charge of 9% on the overall Net Open Position, separate from other risk capital charges.
  • Distinguish treatment between:
    • UCBs that are Authorised Dealers (AD) in foreign exchange, and
    • UCBs that are not Authorised Dealers.

Scope of Capital Requirement for Forex & Gold

Continuous Capital Coverage

Under the substituted sub-paragraph 20(18), every UCB is now required to:

  • Maintain capital for foreign exchange risk and gold open positions on a continuous basis,
  • Specifically, at the close of each business day, based on its Net Open Position.

This transforms NOP computation from a periodic compliance exercise into a daily prudential control mechanism.

Exclusions from NOP for Capital Charge

Certain positions are explicitly carved out from the requirement to hold forex risk capital:

  1. Positions deducted from regulatory capital

    • Any foreign currency exposure that has already been deducted from regulatory capital is not additionally subject to foreign exchange risk capital.
    • The same exemption applies to positions taken solely to hedge such deducted items.

  2. Matured or non-performing securities

    • Securities which:
      • Have already matured and remain unpaid, or
      • Are classified as non-performing asset / investment,
    • Are excluded from forex risk capital computations.
    • However, these exposures must still attract capital for credit risk in line with existing capital adequacy norms.

Note: These exclusions avoid double-counting risk capital and ensure that default-related exposures are treated through credit risk capital, not market risk capital.

What All Must Be Included in NOP?

Trading Book vs Banking Book

For calculating the capital requirement on foreign exchange risk, a UCB must cover all eligible foreign currency positions, including gold, whether they fall in: