The Reserve Bank of India released the draft Master Directions on minimum capital requirements for operational risk as part of convergence of its regulations for banks with Basel III standards. The draft is open for comments of stakeholders and members of the public by January 31, 2022. The provisions of these directions shall apply to all commercial banks excluding local area banks, payments banks, regional rural banks, and small finance banks w.e.f. April 01, 2023.
As per the draft, Operational risk means 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. Also, all existing approaches – Basic Indicator Approach (BIA), The Standardised Approach (TSA)/ Alternative Standardised Approach (ASA) and Advanced Measurement Approach (AMA) for measuring minimum operational risk capital requirements shall be replaced by the new standardised approach (Basel III Standardised Approach).
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