The Reserve Bank of India has unveiled a draft plan to introduce a new leverage buffer for Indian branches of globally important banks, tightening capital requirements in line with Basel guidelines and aiming to modernise the country’s prudential oversight.
The Reserve Bank of India has proposed a new leverage buffer for Indian branches of global systemically important banks, tightening capital rules as it moves to align domestic standards with the latest Basel framework. The draft would require these branches to keep a minimum leverage ratio of 3.5%, in addition to the buffer applied to their parent group by the home regulator.
The proposal leaves unchanged the existing floor of 4% for domestic systemically important banks and 3.5% for other lenders. According to the Reserve Bank, the new rules are intended to modernise India’s prudential regime and bring it into line with the Basel Committee’s leverage ratio framework, which was designed as a non-risk-based backstop against excessive borrowing and destabilising deleveraging.
Under the draft directions, a branch that falls short of its leverage buffer could face limits on capital distributions, depending on whether it also meets its Common Equity Tier 1 and leverage requirements. The central bank is also broadening the way banks calculate exposure, covering on-balance-sheet assets, derivatives, securities financing transactions and off-balance-sheet items. For derivatives, the draft sets out a formula based on replacement cost and potential future exposure, while warning against structures that understate true leverage.
The RBI said it may, in exceptional macroeconomic conditions, temporarily exclude balances held with the central bank from the exposure measure, although the minimum ratio would then be raised to preserve the same degree of resilience. Banks would still have to disclose leverage ratios quarterly on both standalone and consolidated bases. The proposed changes are due to take effect from April 1, 2027, and the RBI is accepting comments until August 28, 2026.
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