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Informist, Friday, Aug. 7, 2026

 

--RBI issues draft directions on banks' prudential norms on capital adequacy 

--RBI: Seek feedback on draft rules on banks' prudential norms by Aug 28 

--RBI: Draft norm aims to adopt latest leverage ratio framework for banks 

 

NEW DELHI – In tandem with the Basel Pillar 3 disclosure requirements for banks, the Reserve Bank of India Friday proposed draft norms for banks to adopt the latest leverage ratio framework. According to the norms, the leverage ratio for Domestic Systemically Important Banks will be maintained at 4% and at 3.5% for other banks. While it does not propose changes to the leverage ratio level, the framework proposes more defined disclosure of capital adequacy, which has to be disclosed quarterly on both a standalone and consolidated basis, the central bank said. 

 

The leverage ratio introduced by Basel III acts as a non-risk-based backstop to the risk-based capital rules. This limits any excessive build-up in leverage. Under this framework, the Tier 1 capital of the bank must be at least 3% of the bank's on-and off-balance sheet exposures. The leverage ratio applies to all internationally active banks. A Global Systemically Important Bank, which does not meet both requirements of the Common Equity Tier I risk-based ratio and Tier I leverage ratio, is subject to the higher minimum capital conservation standard. 

 

For banks with a CETI risk-based ratio of more than 9% and a Tier I leverage ratio of more than 4%, the minimum capital conservation ratio as a percentage of earnings can be maintained at 0%, the draft norms said. For banks with a 5.5-6.375% CETI risk-based ratio and 3.5-3.625% Tier I leverage ratio, the minimum capital conservation ratio as a percentage of earnings must be 100%, it said. 

 

The central bank sought feedback on the draft norms by Aug. 28. They will take effect from Apr. 1, 2027. The leverage ratio, as defined under Basel-III norms, is Tier-I capital as a percentage of the bank's exposures. The framework is designed to capture leverage associated with both on- and off-balance sheet exposures. A bank's total exposure is defined as the sum of the following exposures - on-balance sheet exposures, derivative exposures, securities financing transaction exposures, and off-balance sheet items.

 

According to the draft norms, unless specified, a bank must not take into account two things – first, physical or financial collateral, guarantees or other credit risk mitigation techniques to reduce the leverage ratio exposure measure and second, net assets and liabilities. "For example, gains/losses on fair-valued liabilities or accounting value adjustments on derivative liabilities due to changes in the bank's own credit risk as described in paragraph 28(5) of these Directions shall not be deducted from the leverage ratio exposure measure," the central bank said. 

 

About traditional securitisations, the RBI proposed that a bank may exclude securitised exposures from its leverage ratio exposure measure if the securitisation meets the operational requirements for the recognition of risk transference. "In all other cases, for example traditional securitisations that do not meet the operational requirements for the recognition of risk transference or synthetic securitisations, the securitised exposures shall be included in the leverage ratio exposure measure."

 

The RBI also proposed that a bank must be particularly vigilant to transactions and structures that have the result of inadequately capturing its sources of leverage. Some of those transactions include collateral swap trades structured to mitigate inclusion in the leverage ratio exposure measure and use of structures to move assets off the balance sheet. "Where the Reserve Bank has concerns that such transactions are not adequately captured in the leverage ratio exposure measure or may lead to a potentially destabilising deleveraging process, it may consider a range of actions to address such concerns," it said. 

 

These proposals are consistent with the RBI's Basel Pillar 3 disclosure requirements for banks issued last month, introducing a revised disclosure framework aimed at improving transparency, comparability and market discipline while bringing Indian regulations closer to the Basel Committee's global standards.  End

 

Reported by Priyasmita Dutta

Edited by Deepshikha Bhardwaj

 

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