India, Sept. 22 -- Banks will not be allowed to reclassify instruments between the trading book and banking book for regulatory arbitrage with the intention of achieving lower capital requirements, according to the RBI's directions on minimum capital requirements for market risk. The directions, issued on Monday, aim to align the market risk guidelines with the revised Basel III framework, while ensuring simplicity of regulations, and providing flexibility, and ease of adoption.

The directions are applicable to all commercial banks, except small finance banks, payments banks and local area banks.

RBI said the directions will take effect from April 1, 2027, ensuring sufficient lead time for banks.

"A bank shall not reclassify instrument...