RBI issues final guidelines on interest rate risk in banking book

Mumbai:  The Reserve Bank (RBI) on Friday issued final guidelines on Interest Rate Risk in Banking Book which require banks to measure, monitor, and disclose their exposure to IRRBB that may impact the capital base and future of earnings of lenders.

Banks need to measure, monitor and disclose their exposure to IRRBB

IRRBB refers to the current or prospective risk to banks' capital and earnings arising from adverse movements in interest rates that affect its banking book positions. Excessive IRRBB can pose a significant risk to banks' current capital base and/or future earnings. "These guidelines, accordingly, require banks to measure, monitor, and disclose their exposure to IRRBB," the RBI said in a circular.

The final guidelines on IRRBB are in alignment with the revised framework issued by the Basel Committee on Banking Supervision (BCBS). The RBI further said that the date for implementation of the guidelines will be communicated in due course.

"Banks are advised to be in preparedness for measuring, monitoring, and disclosing their exposure to interest rate risk in the banking book in terms of the circular," it added.

'Board of the banks are responsible for understanding the nature & level of bank's IRRBB exposure'

As per the guidelines, the board of the banks are responsible for understanding the nature and the level of the bank's IRRBB exposure. The Board should approve broad business strategies as well as overall policies with respect to IRRBB.

Accordingly, the circular said that the board is responsible for ensuring that steps are taken by the bank to identify, measure, monitor and control IRRBB consistent with the approved strategies and policies.

It also said that banks should have a clearly defined board approved risk appetite statement which lays down policies and procedures for limiting and controlling IRRBB.

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