The Reserve Bank of India has unveiled a revised leverage ratio framework, closely aligned with Basel Committee standards, aiming to strengthen bank capital oversight without reducing existing minimum ratios, with new rules set to take effect in 2027.
The Reserve Bank of India has proposed a tougher leverage ratio framework for banks, replacing the current regime with one aligned to the latest Basel Committee standards while leaving the minimum ratios unchanged at 4% for domestic systemically important banks and 3.5% for other lenders. The draft is aimed at tightening capital oversight without altering the floor first set by the central bank in 2019, when it eased the ratio to support lending and brought India closer to Basel III norms.
Under the proposal, banks would calculate leverage exposure by combining on-balance sheet assets, derivatives, securities financing transactions and off-balance sheet items using revised measurement rules. The new framework also updates treatment of derivatives and collateral, introduces capital conservation provisions for branches of global systemically important banks and allows central bank reserves to be temporarily excluded in exceptional circumstances.
The changes reflect the broader Basel III approach, in which the leverage ratio acts as a simple, non-risk-based backstop to prevent banks from becoming too highly geared. The Bank for International Settlements says the global minimum leverage ratio is 3%, and India’s current thresholds remain above that level for domestic systemically important banks and other lenders.
The RBI also wants banks to report leverage ratio information each quarter through new LR1 and LR2 disclosure templates and to submit detailed exposure calculations to the central bank. If the draft is adopted after consultation, the revised rules are expected to take effect from April 1, 2027.
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