The Reserve Bank of India (RBI) released a draft titled 'Guidance on Regulatory Principles for Model Risk Management' on June 24, 2026. The draft outlines the regulatory expectations for banks and financial institutions regarding the management of risks associated with the use of models in their operations, aiming to strengthen the overall risk framework.
The draft guidance specifies principles for model development, validation, and governance, emphasizing the need for robust risk controls and accountability within institutions. It calls for banks to establish comprehensive model risk management frameworks, including regular reviews and independent validations. The RBI also invites feedback from stakeholders on the draft to refine the regulatory approach.
This move by the RBI reflects growing concerns over the increasing reliance on complex models in banking, which can introduce significant risks if not properly managed. The guidance aligns with global regulatory trends that seek to mitigate model risk, similar to frameworks adopted by other central banks. It aims to enhance the resilience of the financial system by ensuring that model risks are identified, assessed, and controlled effectively.
The RBI has set a deadline for comments on the draft guidance, encouraging banks and industry participants to submit their feedback within the specified period. The final version will be issued after considering the inputs received, marking a key step in formalizing model risk management standards in India’s banking sector.