MUMBAI: The Reserve Bank of India (RBI) plans to usher in new prudential norms on capital adequacy for commercial banks, whereby the minimum leverage ratio, which measures how much capital a bank has compared to its total exposure, for a domestic systemically important bank (D-SIB) will be 4 per cent and 3.5 per cent for other banks.
This move is aimed at ensuring alignment with the latest leverage ratio framework issued by the Basel Committee on Banking Supervision, per the Draft RBI (Commercial Banks – Prudential Norms on Capital Adequacy) Eleventh Amendment Directions.
RBI has invited comments/feedback from stakeholders on these Directions by August 28, 2026. These Amendment Directions shall come into effect from April 1, 2027.
A branch of a global systemically important bank (G-SIB) in India shall maintain a leverage ratio of 3.5 per cent, along with an additional buffer required by its home country’s regulator.
RBI said capital distribution constraints will be imposed on a G-SIB branch which does not meet its leverage ratio buffer requirement.
So, if a G-SIB branch fails to maintain the required buffer, the RBI could restrict the amount of profit it can distribute as dividends or bonuses. In the most serious cases, the bank may be prohibited from distributing any profits until its capital position improves.
RBI said Banks should be more mindful of how they arrive at their total exposure. They should capture items such as off-balance-sheet exposures (e.g., guarantees and commitments), derivative transactions, and securities financing transactions (SFTs).
The RBI has introduced a new risk multiplier of 1.4 for derivative contracts, thereby upping the amount of exposure banks must report. This will give a more conservative estimate of the risks involved.
The central bank said banks cannot reduce their reported exposure by using collateral or guarantees. This ensures they show their true level of leverage rather than making it appear lower through risk-reduction techniques.
Source: The Hindu Business Line
