The Reserve Bank of India on Friday issued final directions on leverage ratio requirements for commercial banks, aligning its prudential framework with the latest standard issued by the Basel Committee on Banking Supervision.
The rules will take effect from April 1, 2027.
The directions follow a draft issued on August 7, on which the RBI invited stakeholder comments until August 28.
Also Read: RBI proposes a leverage ratio of 3.5% for ‘important’ global banks
The central bank said it examined the feedback and incorporated modifications into the final rules.
The leverage ratio measures a bank’s Tier 1 capital relative to its total exposure, including on-balance sheet and off-balance sheet items.
It serves as a safeguard against banks expanding their exposures excessively relative to their capital, complementing risk-weighted capital requirements.
The August draft proposed a minimum leverage ratio of 4% for domestic systemically important banks (D-SIBs), including State Bank of India, HDFC Bank and ICICI Bank, and 3.5% for other commercial banks.
Branches of global systemically important banks (G-SIBs) in India were proposed to maintain a minimum ratio of 3.5%, plus an applicable buffer.
Banks had suggested that the leverage ratio requirement for G-SIBs be aligned with the Basel minimum of 3%, but the RBI rejected the proposal, Reuters reported.
The draft also proposed capital distribution constraints for G-SIB branches that failed to meet their leverage ratio buffer requirements.
The restrictions would depend on the branch’s common equity Tier 1 risk-based capital ratio and leverage ratio.
The RBI had also proposed including all on-balance sheet assets in the exposure measure, including on-balance sheet derivatives collateral.
In exceptional macroeconomic circumstances, it could temporarily exempt banks’ balances maintained with it from the exposure measure to facilitate monetary policy implementation. Banks would have to disclose the impact of any such exemption alongside the leverage ratio calculated without it