As part of the convergence of its regulations for banks with Basel-III standards, the Reserve Bank of India on Wednesday issued the ‘Draft Master Direction on Minimum Capital Requirements for Operational Risk.’
These directions shall be applicable to all commercial banks excluding local area banks, payments banks, regional rural banks, and small finance banks.
‘Operational risk’ refers to the risk of loss resulting from inadequate or failed internal processes, people, and systems or from external events. This definition includes legal risk, but excludes strategic and reputational risk.
The RBI has sought comments on the draft from all stakeholders by 31 January next year.
All existing approaches including, the basic indicator approach (BIA), The standardised approach (TSA)/ alternative standardised approach (ASA) and advanced measurement approach (AMA) for measuring minimum operational risk capital requirements, are proposed to be replaced by the new standardised approach (Basel-III standardised approach).
These directions shall come into effect from April 1, 2023, the RBI stated.
