The Reserve Bank of India has revised operational risk capital norms for banks, effective April 1, 2027, covering income classification, derivative valuations and historical loss data. According to Business Standard, the revised framework divides the business indicator used to calculate operational risk capital into three components — Interest, Lease and Dividend Component (ILDC), Services Component (SC) and Financial Component (FC). The central bank has specified that interest rate derivative assets affecting interest income must be measured at fair value rather than notional value, with only positive fair values included and negative fair values cannot be deducted. The Services Component covers fee and commission income from securities-related services, clearing and settlement, asset management, custody, payment services, structured finance, securitisation servicing, loan commitments, guarantees and foreign transactions, while the Financial Component requires banks to separately classify gains and losses from trading book and banking book activities in line with RBI's capital adequacy directions. The latest amendments issued on Friday, October 23, 2026, provide detailed guidance on the computation of Operational Risk Capital (ORC), including an indicative mapping of Business Indicator (BI) items to balance sheet and profit-and-loss account schedules. The central bank has also clarified that operational risk losses used for calculating the Internal Loss Multiplier (ILM) will be considered net of recoveries, with banks with at least five years of high-quality loss data able to use such data for computing the loss component if 10-year data is unavailable.
The Reserve Bank of India has tightened the framework for measuring banks' total exposure, including loans, investments, derivatives and off-balance-sheet commitments, against their Tier 1 capital. According to The Economic Times, the revised rules retain the minimum leverage ratios at 4% for domestic systemically important banks and 3.5% for other banks, with the norms taking effect from April 1, 2027. The central bank has widened the measurement of derivatives, repo transactions and off-balance-sheet exposures while strengthening disclosure requirements and restricting the use of collateral and netting to reduce reported exposures. The leverage ratio acts as a check on excessive borrowing and balance-sheet expansion, regardless of the risk assigned to individual assets. As per ABC Live, the ratio divides Tier 1 capital by total leverage exposure, combining balance-sheet exposures, derivatives, securities financing and converted off-balance-sheet items, with the international Basel minimum set at 3% while India retains higher floors for covered bank groups. The new framework prescribes the minimum leverage ratio at 4% for domestic systemically important banks (D-SIB), and 3.5% for other banks, with the leverage ratio measuring a bank's core capital relative to its total exposure without accounting for the riskiness of its loans or investments.
Under the final framework, domestic systemically important banks (D-SIBs) must maintain a minimum leverage ratio of 4%, while other commercial banks need a ratio of 3.5%. As reported by The Economic Times, branches of global systemically important banks (G-SIBs) in India will maintain a minimum ratio of 3.5%, plus an applicable buffer. According to ABC Live, Indian branches of global systemically important banks must maintain 3.5% plus their applicable leverage buffer, including any additional buffer prescribed by their home regulator. The practical constraint varies significantly between banks, as the same rule can bind one bank while another has ample room to grow, with the document containing no impact study measuring this split. Banks with an international presence or outstanding derivatives of ₹25,000 crore or more, calculated on a consolidated group-wide basis, will have to use the Standardised Approach for Counterparty Credit Risk (SA-CCR). In their feedback, banks also requested aligning the calculation of replacement cost, potential future exposure, and the multiplier under the leverage ratio framework with the Standardised Approach for Counterparty Credit Risk (SA-CCR). The RBI rejected the proposal, clarifying that as a non-risk-based metric, the leverage ratio exposure cannot be reduced by collateral received from counterparties.
The framework introduces expanded quarterly disclosure requirements on standalone and consolidated bases, including a reconciliation of accounting assets with leverage exposures and details of different exposure categories. As reported by The Economic Times, disclosures covering average and quarter-end securities-financing exposures will give the regulator and markets greater visibility into changes around reporting dates. According to ABC Live, banks must use daily means of specified SFT exposures and ratios that include those means, helping show reporting-date changes, though banks must still monitor compliance with the minimum at all times. Banks will have to always comply with the minimum leverage ratio, although the reported ratio will be calculated using quarter-end capital and exposure figures. Requests to calculate exposures using daily or monthly averages will be considered by the RBI on a case-by-case basis. The regulator has also agreed to modify the reporting format on its Centralised Information Management System if required, to align it with the revised directions. Unlike risk-weighted capital rules, the leverage ratio measures total exposure—including on-balance-sheet assets, derivatives, securities financing, and off-balance-sheet commitments—without allowing reductions for collateral, guarantees, or netting unless explicitly permitted.
According to The Economic Times, banks had suggested that the leverage ratio requirement for G-SIBs be aligned with the Basel minimum of 3%, but the RBI rejected this proposal. The central bank has rejected requests to cap the requirement for these branches at the level prescribed by their home jurisdiction, lower it to the Basel minimum of 3%, or calibrate it according to the activities and systemic importance of the Indian branch. As per ABC Live, under Basel, the G-SIB leverage buffer equals half its risk-based higher-loss-absorbency requirement, with the amendment not separately stating a single formula for every home-country arrangement. Indian branches of global systemically important banks will have to maintain a leverage ratio of 3.5% plus the applicable G-SIB buffer, including any additional buffer prescribed by their home regulator. The framework now specifies explicit capital distribution constraints for G-SIB branches that fail to meet their leverage ratio buffer requirements, with the capital distribution constraints imposed on the branch depending on its common equity tier 1 (CET1) risk-based ratio and its leverage ratio. The RBI may also, at its discretion, temporarily exempt central bank reserves from the leverage ratio exposure measure or increase the calibration of the minimum leverage ratio to ensure transmission of monetary policy.
The RBI has declined to prescribe advance quantitative triggers for granting exemptions during exceptional macroeconomic circumstances, saying the Basel framework does not specify such parameters. As reported by The Economic Times, the central bank has also rejected requests to defer the April 2027 implementation date. According to Mint, the central bank had issued draft guidelines on 7 August, seeking public comments through 28 August, while commercial banks requested additional time to implement the revised leverage ratio framework, which the RBI rejected. In exceptional macroeconomic circumstances, the RBI could temporarily exempt banks' balances maintained with it from the exposure measure to facilitate monetary policy implementation. The framework allows the RBI to temporarily exclude balances maintained with the central bank from the exposure measure, with any such relief accompanied by a corresponding recalibration of the minimum leverage ratio, and banks must disclose their ratios both with and without the exemption. The directions strengthen the RBI's supervisory powers where reported exposures do not adequately capture a bank's leverage, with the regulator able to seek additional information, require improvements in leverage management or impose a Pillar 2 capital charge. The RBI has also particularly cautioned banks to be vigilant to transactions and structures that have the result of inadequately capturing its sources of leverage, adding that where such transactions are not adequately captured in the leverage ratio exposure measure, it may consider a range of supervisory actions.
