RBI revises bank leverage ratio norms, new framework effective April 2027 | Finance News
The Reserve Bank of India (RBI) on Friday revised the leverage ratio framework for banks, changing the requirements for calculating exposure measures and disclosures. The amended directions will come into effect from April 1, 2027.
Under the revised norms, the minimum leverage ratio will be 4 per cent for domestic systemically important banks (D-SIBs) and 3.5 per cent for other banks. Indian branches of global systemically important banks (G-SIBs) will have to maintain a leverage ratio of 3.5 per cent plus the applicable leverage ratio buffer, including any additional buffer prescribed by their home regulator.
The amendments are aimed at aligning the framework with the leverage ratio standard issued by the Basel Committee on Banking Supervision in 2017.
The revised directions specify the treatment of on-balance-sheet assets, derivative exposures, securities financing transactions and off-balance-sheet items.
For on-balance-sheet exposures, banks will generally have to use gross accounting values. They will not be allowed to offset assets and liabilities or reduce exposures by using collateral and guarantees, except where specifically permitted under the directions.
The RBI has also prescribed rules for calculating derivative exposures, including the treatment of replacement costs, potential future exposures, collateral and variation margin. The directions specify the conditions under which netting may be permitted for securities financing transactions.
Off-balance-sheet items covered by the framework include commitments, liquidity facilities, direct credit substitutes, acceptances, standby letters of credit and trade letters of credit. These exposures will be converted into credit-equivalent amounts using the prescribed credit conversion factors. A 100 per cent credit conversion factor will apply to certain specified items.
Both the capital measure and the exposure measure will be calculated at the end of each quarter. Banks may, with RBI approval, use more frequent calculations, such as daily or monthly averages, provided they do so consistently. Banks will be required to meet the minimum leverage ratio at all times.
The revised directions also set out capital conservation requirements for Indian branches of G-SIBs that do not meet their leverage ratio buffer requirements. The applicable requirements will depend on the branch’s common equity Tier 1 (CET1) risk-based capital ratio and Tier 1 leverage ratio. A branch that fails to meet both requirements will be subject to the higher applicable minimum capital conservation standard.
Banks will have to disclose their Basel III leverage ratios quarterly on both standalone and consolidated bases. They will also have to report the ratios to the RBI’s Department of Supervision, along with detailed calculations of capital and exposure measures, and make disclosures under the prescribed Pillar 3 templates.
