12) For the advanced market risk approach, a bank will need to classify its back-testing outcomes into three zones depending on the number of exceptions arising from backtesting.The extreme zone is the red zone if the back-testing results produce ten or more exceptions in which case the multiplication factors for both VaR and stressed VaR will be increased from three to four.
RBI will allow 10 or more exceptions under the most extraordinary circumstances. RBI may require banks whose model for market risk fall in Red Zone to either discontinue the model or begin work on improving the model immediately.