RBI’s Draft Guidelines on Interest Rate Risk in Banking Book

The Reserve Bank of India (RBI) has released draft guidelines on interest rate risk in the banking book (IRRBB). These guidelines aim to strengthen the interest rate risk management framework of banks in India.

What are the key changes in the RBI’s Draft Guidelines on IRRBB?

The key changes in the RBI’s Draft Guidelines on IRRBB include:

  • A shift from a standardized approach to a risk-based approach: The previous guidelines required banks to use a standardized approach to measure and manage IRRBB. The new guidelines allow banks to use a risk-based approach, which is more flexible and allows banks to tailor their IRRBB management framework to their specific risk profile.
  • A focus on stress testing: The new guidelines place a greater emphasis on stress testing as a tool for measuring and managing IRRBB. Banks are required to conduct regular stress tests to assess their vulnerability to changes in interest rates.
  • Enhanced disclosures: The new guidelines require banks to make more detailed disclosures about their IRRBB management framework and their exposure to IRRBB. This will help investors and other stakeholders to better understand the risks faced by banks.

Multiple choice questions:

  1. Which of the following is not a key change in the RBI’s Draft Guidelines on IRRBB?
    • a. A shift from a standardized approach to a risk-based approach
    • b. A focus on stress testing
    • c. Enhanced disclosures
    • d. A requirement for banks to use derivatives to hedge IRRBB
    • Answer: d. A requirement for banks to use derivatives to hedge IRRBB
  2. Which of the following is a benefit of using a risk-based approach to IRRBB management?
    • It allows banks to tailor their IRRBB management framework to their specific risk profile.
    • It is more flexible than the standardized approach.
    • It requires banks to conduct more frequent stress tests.
    • All of the above
    • Answer: d. All of the above
  3. Which of the following is a tool that can be used to measure IRRBB?
    • Duration
    • Convexity
    • Value at risk (VaR)
    • All of the above
    • Answer: d. All of the above
  4. Which of the following is a disclosure that banks are required to make under the new guidelines?
    • The amount of interest rate risk that the bank is exposed to
    • The bank’s risk appetite for IRRBB
    • The bank’s IRRBB management framework
    • All of the above
    • Answer: d. All of the above