RBI sets leverage ratio floors for Indian banks from April 2027

The Reserve Bank of India (RBI) on 23 October set a minimum leverage ratio of 4 per cent for domestic systemically important banks (D-SIBs) and 3.5 per cent for other banks, from 1 April 2027, its notification says.

The notification is the RBI's Eleventh Amendment Directions on capital adequacy for commercial banks. The Directions say their purpose is "To ensure alignment with the latest leverage ratio framework". They are issued under Section 35A of the Banking Regulation Act, 1949, and take effect on 1 April 2027. A bank "shall meet the minimum leverage ratio requirement at all times", paragraph 262(6) says, although the capital measure and the exposure measure are both calculated at quarter end, unless the RBI approves a more frequent basis, paragraph 262(5) says.

Floors by type of bank

Indian branches of global systemically important banks (G-SIBs) must keep a ratio of 3.5 per cent "plus the leverage ratio buffer applicable to it as a G-SIB", paragraph 262(2) says. A branch that falls short of its leverage buffer faces limits on capital distributions, which depend on both its common equity tier 1 (CET1) risk-based ratio and its Tier 1 leverage ratio. For a branch in the first G-SIB bucket, where a 1 per cent risk-based G-SIB capital buffer applies, the table in paragraph 262(4) requires 100 per cent of earnings to be retained when the CET1 ratio is 5.5 to 6.375 per cent and the Tier 1 leverage ratio is 3.5 to 3.625 per cent. The share falls to 80, 60 and 40 per cent in the next three bands, and to zero when the CET1 ratio is above 9.0 per cent and the Tier 1 leverage ratio is above 4.0 per cent.

What goes into the ratio

The ratio is "the capital measure (the numerator) divided by the exposure measure", paragraph 262(1) says. The exposure measure "generally follows gross accounting values", and a bank may not "take account of physical or financial collateral, guarantees or other credit risk mitigation techniques" to reduce it, paragraphs 265(1) and 265(2) say. On-balance-sheet exposures count "at their accounting values less deductions for associated specific provisions" (paragraph 266(2)), and securities financing transactions enter as gross assets recognised for accounting purposes, with no accounting netting (paragraph 268(2)(i)).

For derivatives measured under the standardised approach for counterparty credit risk (SA-CCR), the exposure is a scalar of 1.4 times the sum of replacement cost and potential future exposure, and paragraph 267A(3)(iii)(a) sets the multiplier in the potential future exposure calculation: "For the purposes of the leverage ratio framework, the multiplier is fixed at one." Off-balance-sheet items enter at their notional amounts, multiplied by the credit conversion factors in paragraph 269(4), and the transition period allowed for one of those factors does not apply to the leverage ratio.

The text also lets the RBI exempt central bank reserves for a time. To help carry out monetary policy, the RBI "may temporarily exempt central bank reserves" in exceptional macroeconomic circumstances, paragraph 265(7) says. If it does, it "will also increase the calibration of the minimum leverage ratio requirement commensurately", and a bank must "disclose the impact of any temporary exemption".

Disclosure and the wider Basel III set

Under paragraph 270, a bank must "publicly disclose" its quarterly Basel III leverage ratio on both a standalone and a consolidated basis, report the ratio to the RBI's Department of Supervision, and make its disclosures in Templates LR1 and LR2 of Annex III, the Pillar 3 disclosure requirements.

The RBI's notification list shows a second set issued on the same day, the Commercial Banks (Forthcoming Instructions) Second Amendment Directions, 2026. TaxGuru summarises it as bringing Chapter IV, on minimum capital requirements for operational risk, into effect on 1 April 2027, and CorpLawUpdates adds that a bank first subject to the internal loss multiplier, and lacking 10 years of loss data, may use five or more. We have not checked those two details against the text of the Directions.

On 21 September the RBI issued final Directions on minimum capital requirements for market risk, also effective on 1 April 2027, after a draft in February 2023, its press release says. The notification list also shows, for 7 October, credit valuation adjustment framework Directions for commercial banks and capital adequacy amendments for commercial banks (titled Twelfth), small finance banks, payments banks and all-India financial institutions; it gives their titles only. The leverage ratio Directions of 23 October are titled Eleventh Amendment Directions for commercial banks.

Elsewhere in the Basel system, Plumb Line has argued that emerging-market supervisors should ask for a common yardstick as the Financial Stability Board consults on modernising its principles, and that they should close gaps in resolution backstop funding. For the leverage ratio itself, the date to work to is 1 April 2027.