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The RBI publishes final guidelines on interest rate risk in banking books

Published on February 20, 2023
Current context: The Reserve Bank of India (RBI) has issued final guidelines on "Interest Rate Risk in Banking Book" (IRRBB), which mandate banks to measure, monitor, and disclose their exposure to IRRBB.
The RBI publishes final guidelines on interest rate risk in banking books
  • IRRBB refers to the current or future risk to banks' capital and earnings resulting from unfavourable changes in interest rates that affect their banking book positions.
  • The final IRRBB guidelines are consistent with the revised framework issued by the Basel Committee on Banking Supervision (BCBS).
  • The bank's board is accountable for identifying the nature and extent of the bank's IRRBB exposure, while ALCO (Asset-Liability Committee) is responsible for managing and monitoring IRRBB.
  • The Board/ALCO establishes adequate limits on IRRBB, values positions, and evaluates performance. The guidelines include procedures for updating interest rate shock and stress scenarios and key underlying assumptions guiding the institution's IRRBB analysis.
  • Banks must have a clearly defined, board-approved risk appetite statement that outlines the policies and procedures for limiting and controlling IRRBB. Before implementation, significant hedging or risk management measures must be approved. The implementation date of the guidelines will be announced in due course.

Question:

Q.1 What is the main purpose of the final guidelines issued by RBI on "Interest Rate Risk in Banking Book" (IRRBB)?
a. To mandate banks to measure, monitor, and disclose their exposure to IRRBB
b. To increase the interest rates of loans offered by banks
c. To decrease the capital base of banks
d. To decrease the earnings of banks 
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