RBI issues guidelines on implementation of Leverage Ratio 2017 Standard

The Reserve Bank has released the Reserve Bank of India (Commercial Banks – Prudential Norms on Capital Adequacy) Eleventh Amendment Directions, 2026. 4. These instructions will come into effect from April 1, 2027.

Important Points

Effective Date: These amendment directions shall come into effect from April 1, 2027.

Objective: The amendments align the regulatory guidelines with the latest leverage ratio framework (‘leverage ratio 2017 standard’) issued by the Basel Committee on Banking Supervision.

Minimum Leverage Ratio Requirements:

• Domestic systemically important banks (D-SIBs) must maintain a minimum leverage ratio of 4%.
• Other banks must maintain a minimum leverage ratio of 3.5%.
• Branches of global systemically important banks (G-SIB branches) in India must maintain 3.5% plus their applicable G-SIB leverage ratio buffer.

Capital Distribution Constraints for G-SIB Branches: Constraints are imposed on G-SIB branches that fail to meet their leverage ratio buffer requirements, tied to both their CET1 risk-based ratio and Tier 1 leverage ratio. Minimum capital conservation ratios range from 100% of earnings down to 0% depending on how comfortably the bank exceeds these thresholds.

Calculation Frequency: Both capital and exposure measures are generally calculated on a quarter-end basis, though banks may use more frequent calculations (e.g., daily or monthly averaging) with RBI approval. Central bank reserves may be temporarily exempted in exceptional macroeconomic circumstances, accompanied by a commensurate calibration increase.

Derivative Exposures (SA-CCR): For banks adopting the standardised approach for counterparty credit risk (SA-CCR), derivative exposures equal a scalar multiplier $\alpha$ (alpha) set at 1.4 times the sum of the replacement cost (RC) and potential future exposure (PFE).

Written Credit Derivatives: In addition to standard mark-to-market valuations, written credit derivatives must include the effective notional amount in the leverage ratio exposure measure to capture underlying credit risk, subject to specific offsetting rules.

Securities Financing Transactions (SFTs): SFT exposures are included using gross SFT assets adjusted for specific exclusions, and a measure of counterparty credit risk (CCR) calculated as current exposure without a PFE add-on.

Off-Balance Sheet (OBS) Items: Non-market related OBS items are converted into credit equivalent amounts using specified Credit Conversion Factors (CCFs), with a 100% CCF applied to credit substitutes and unsettled financial asset purchases under settlement date accounting.

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