The Reserve Bank of India (RBI) on Monday issued final rules on banks' credit risk framework, with the new framework taking effect from 1 April 2027. According to reports from Mint, the final rules follow stakeholder feedback on a draft issued on 7 October 2025 and are based on the Basel framework, which allows banks to compute credit risk capital using either the Standardized Approach (SA) or Internal Ratings Based (IRB) approach. RBI has decided to proceed with the Standardized Approach for banks under its jurisdiction, with the objective to ensure prudent and credible calculation of risk-weighted assets for arriving at capital ratios for banks in a 'comparable and risk-sensitive manner'.
RBI rejected banks' demand to allow classification of existing credit card holders with clean 12-month repayment records as 'transactors' immediately upon onboarding with another bank. As reported by Mint, the regulator stated that 'The bank shall consider a credit card account as transactor only after a demonstration of full 12 months performance with itself.' The central bank removed overdraft facilities from the scope of this classification but allowed a three-day grace period in credit reporting to be included in the repayment period used for classification.
RBI raised the threshold for unrated large exposures attracting a 150% risk weight from ₹200 crore to ₹500 crore, stating this would ensure higher risk weights apply only to relatively larger borrowers. According to Mint, the regulator also withdrew the prudential treatment for accounts that were previously rated but have since become unrated. For unrated foreign bank branches in India, RBI allowed parent bank ratings to be used as a proxy, provided they are issued by international agencies such as S&P, Fitch, or Moody's.
The central bank expanded the definition of eligible MSME-related exposure by modifying the ₹500 crore threshold to include all small businesses with turnover up to ₹500 crore, on a standalone or group-wide basis. As reported by Mint, RBI also raised the threshold for classification as regulatory retail exposure to ₹10 crore from ₹7.5 crore. The regulator eased its proposal to cap consolidated exposure to corporate groups at ₹500 crore, broadening eligibility to ensure benefits of lower risk weights extend to small businesses not formally registered as MSMEs.
RBI rejected proposals to relax risk weights for residential and commercial real estate exposures tied to economic activity or underlying property cash flows, maintaining that risk weights will continue to be driven primarily by the quality of security and repayment structure. According to Mint, Macquarie Research noted that while the new Basel-III rules will release capital, banks in India are currently sitting on excess capital with CET1 around 14.7%—well above regulatory requirements of 8-9%. The research firm highlighted that any impact near term will be limited from a growth standpoint unless demand picks up.
