Brief Overview:
New rules proposed on how regulated entities, like commercial banks must calculate their Net Open Position (NOP) in FX.
This would mean
1) eliminating separate onshore/offshore NOP calculations.
2) overseas‑operation surpluses to be added to NOP.
3) application of capital charge on actual NOP.
4) revising the shorthand NOP method to align with Basel by treating gold separately and allowing exemptions for certain structural FX positions.
Draft directions open for comments till 3rd February 2026.
Technical Details:
Key Highlights
1) Count everything: All FX and gold positions to be counted towards FX risk.
2) Two‑step measure: Compute single‑currency NOP and overall portfolio NOP.
3) Net forward: unsettled tom/spot + forwards/futures + swap principals.
4) Composite currencies: Treat as one or split- just be consistent; gold at spot.
5) Overseas exposure: Capital invested + unremitted surplus form part of net spot.
6) Overall NOP: Higher of total longs vs total shorts plus net gold.
Takeaways:
A unified risk lens: NOP compresses the bank’s complete FX book into a single, easy‑to‑read domestic‑currency exposure number.
For further details, please see:
2) Commercial Banks – Prudential Norms on Capital Adequacy
3) All India Financial Institutions – Prudential Norms on Capital Adequacy
For any queries/clarifications, please feel free to ping us and we will be happy to chat:
