Net Open Position & Foreign Exchange Risk Capital

RBI Has Changed How Banks Measure NOP and Forex Risk Capital

The Reserve Bank of India's (RBI) Commercial Banks Prudential Norms on Capital Adequacy (Tenth Amendment) Directions, 2026, dated 24 June 2026, introduced a revised approach to measuring Net Open Position (NOP) and the capital required for foreign exchange risk.

While several changes simplify the mechanics of NOP computation, the broader impact is significant. The revised framework expands the view of forex exposure across:

• Standalone and consolidated operations
• Onshore and offshore positions
• Overseas investments
• Structural foreign currency exposures

For banks with significant international operations, this could change both the reported NOP and the associated capital requirement.

Five Key Changes Banks Need to Know

1. From a Solo View to a Group-Wide View

   NOP will be computed daily at both standalone and consolidated levels. Onshore, offshore branch and subsidiary positions will be combined on a currency-wise basis.

   Banks will need stronger currency-wise aggregation, reconciliation and daily data availability across locations and entities.
    

2. Overseas Investments Become Part of the Forex Risk Lens

   Invested capital and surplus of overseas subsidiaries, joint ventures and associates are considered for the standalone bank-level NOP assessment. Banks have an option for structural forex exemption, subject to the prescribed conditions.

   Banks with sizeable overseas investments should reassess their structural forex positions and determine whether eligible positions can be excluded. This could also influence capital allocation decisions. 
    

3. Simpler Derivative Measurement, but Potentially Different Outcomes

   Derivatives will be considered without present-value adjustment. Applicable spot rates will be used for conversion, with FBIL spot rates identified in the source document.

   Banks should run parallel calculations under the existing and revised methodologies to find portfolios and currencies where NOP could change materially.
    

4. Capital Requirement Is Now Linked to Actual NOP Utilisation

   The forex risk capital charge is revised to 9% of NOP utilisation, rather than 9% of the higher of utilisation or the NOP limit.
    

5. New Exclusions and Gold Treatment Require Attention

   The framework introduces exclusions for certain positions already deducted from regulatory capital. Gold positions must be captured separately, with the net gold position considered alongside currency positions

   Banks should revisit their regulatory exclusion inventory and ensure gold and other eligible positions are consistently captured across systems.

Where Should Banks Focus?

The impact will differ significantly across banks. A bank with limited overseas operations may primarily face methodology and system changes. A bank with substantial international businesses could see implications for NOP, capital consumption, hedging strategy and regulatory reporting.

Four immediate priorities:

1. Quantify the impact: Run the revised methodology alongside the existing calculation using historical data.
2. Build a complete forex exposure inventory: Identify all FX exposures across on-balance sheet, off-balance sheet and structural positions, covering the Bank, Branches, Subsidiaries, JVs and Associates.
3. Strengthen daily data and governance: Assess whether Treasury, Risk and regulatory reporting systems can support reliable daily aggregation and reconciliation.
4. Integrate NOP with capital and treasury decisions: Consider NOP as part of Treasury limits, hedging strategy, capital allocation and management reporting.

Quantify. Identify. Assess.

The revised NOP framework should not be viewed as simply another regulatory reporting change. It represents a broader shift towards understanding and managing the bank's overall foreign currency exposure across currencies, locations and group entities.

For banks, the immediate priority is to quantify the impact, identify actionable structural FX exemptions and assess readiness across data, processes, technology and governance.

Download the full white paper for the complete impact view, entity-level considerations and how Protiviti can help.