RBI issues draft guidelines on interest rate risk management

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The Reserve Bank of India  of Thursday released the draft guidelines on Interest Rate Risk in Banking Book (IRRBB),  which stress on greater disclosures by lenders.

IRRBB refers to the current or prospective risk to a bank's capital and earnings, arising from adverse movements in interest rates that affect banking book positions. An excessive IRRBB can pose a significant threat to a bank's current capital base and/or future earnings if not managed appropriately, the RBI explained.

The draft guidelines suggest lenders to compute and disclose the changes in economic value of equity and net interest income.

If the economic value of equity goes over 15 per cent of the core tier-1 capital, banks may be required to take appropriate action as per Pillar 2 of Basel III Capital regulations.