RBI draft proposes to rewrite banks’ leverage ratio chapter on the Basel 2017 standard from 1 April 2027; text puts the minimum at 4% for D-SIBs and 3.5% for other banks
RBI released a draft on 7 August 2026 to amend Chapter VII (Leverage Ratio framework) of its capital adequacy Directions for commercial banks, to align with the Basel Committee’s ‘Leverage Ratio 2017 Standard’. The draft sets out how the exposure measure is to be built from on-balance sheet, derivative, SFT and off-balance sheet exposures, and proposes 1 April 2027 as the date of effect. Comments were invited till 28 August 2026; the window has closed.
Key facts
- In force
- Draft only; proposed date of effect 1 April 2027; comments closed on 28 August 2026
- Who it affects
- Commercial banks, including domestic systemically important banks and Indian branches of global systemically important banks; bank capital, risk and finance teams
- What it is
- Comments invited
- Section
- FEMA & RBI
- Published
- 7 August 2026
In 30 seconds
- The draft is the Reserve Bank of India (Commercial Banks – Prudential Norms on Capital Adequacy) Eleventh Amendment Directions, 2026.
- Leverage ratio = capital measure divided by exposure measure. The draft text gives the minimum as 4% for a domestic systemically important bank and 3.5% for other banks.
- A branch of a global systemically important bank in India is to hold 3.5% plus the leverage ratio buffer applicable to it as a G-SIB, or face capital distribution constraints.
- Derivative exposure is proposed as 1.4 times the sum of replacement cost and potential future exposure.
- Collateral, guarantees and netting of assets and liabilities generally cannot be used to reduce the exposure measure.
- Banks would disclose the leverage ratio every quarter, standalone and consolidated, and report it to RBI’s Department of Supervision.
- It is a draft; the proposed date of effect is 1 April 2027.
हिंदी में सार
RBI ने 7 अगस्त 2026 को commercial banks के capital adequacy Directions के Leverage Ratio अध्याय में संशोधन का draft जारी किया, ताकि इसे Basel Committee के ‘Leverage Ratio 2017 Standard’ के अनुरूप किया जा सके। draft के पाठ में न्यूनतम leverage ratio D-SIB के लिए 4% और अन्य बैंकों के लिए 3.5% लिखा है, और derivative exposure की गणना 1.4 × (RC + PFE) से होगी। यह सिर्फ़ प्रस्ताव है, 1 अप्रैल 2027 से लागू करने की बात है; सुझाव की तारीख़ 28 अगस्त 2026 निकल चुकी है।
What RBI has proposed
On 7 August 2026 the Reserve Bank of India released the draft Reserve Bank of India (Commercial Banks – Prudential Norms on Capital Adequacy) Eleventh Amendment Directions, 2026. It proposes to amend Chapter VII — the Leverage Ratio framework — of the 2025 capital adequacy Directions, to implement the latest leverage ratio framework of the Basel Committee on Banking Supervision, the ‘Leverage Ratio 2017 Standard’.
The draft substitutes paragraphs 262, 263(1), 265 to 269 and 270, deletes paragraph 271 and replaces the leverage ratio part of the Pillar 3 disclosure annex. It proposes to come into effect from 1 April 2027. This is a proposal, not a final rule.
The ratio and the minimum
The Basel III leverage ratio is the capital measure divided by the exposure measure, expressed as a percentage. As drafted, paragraph 262 reads:
| Bank | Minimum leverage ratio in the draft text |
|---|---|
| Domestic systemically important bank (D-SIB) | 4% |
| Other banks | 3.5% |
| Branch in India of a global systemically important bank (G-SIB) | 3.5% plus the leverage ratio buffer applicable to it as a G-SIB, including any additional buffer prescribed by the home regulator |
The draft does not say whether these figures differ from the existing ones. Both measures are calculated on a quarter-end basis, and a bank must meet the minimum at all times.
G-SIB branches: capital distribution constraints
A G-SIB branch that does not meet its leverage ratio buffer requirement would face capital distribution constraints. For a branch in the first bucket (a 1% risk-based G-SIB buffer), the draft gives this table:
| CET1 risk-based ratio | Tier 1 leverage ratio | Minimum capital conservation ratio (% of earnings) |
|---|---|---|
| 5.5% – 6.375% | 3.5% – 3.625% | 100% |
| Above 6.375% – 7.25% | Above 3.625% – 3.75% | 80% |
| Above 7.25% – 8.125% | Above 3.75% – 3.875% | 60% |
| Above 8.125% – 9% | Above 3.875% – 4.0% | 40% |
| Above 9.0% | Above 4.0% | 0% |
How the exposure measure is built
The exposure measure generally follows gross accounting values. Unless the draft says otherwise, a bank cannot use collateral, guarantees or other credit risk mitigation to reduce it, and cannot net assets against liabilities. It is the sum of four parts:
- On-balance sheet exposures — all balance sheet assets at accounting value less specific provisions, with rules for unsettled trades and cash pooling arrangements.
- Derivative exposures — 1.4 times the sum of replacement cost and potential future exposure. Cash variation margin can reduce replacement cost only if five conditions are met, including daily exchange and a single master netting agreement. Written credit derivatives are added at their effective notional amount.
- Securities financing transaction exposures — gross SFT assets, with netting of cash payables and receivables only under stated conditions, plus a counterparty credit risk measure.
- Off-balance sheet items — converted using credit conversion factors applied to the notional amount.
Items deducted from Tier 1 capital are also deducted from the exposure measure. RBI may temporarily exempt central bank reserves in exceptional macroeconomic circumstances, raising the minimum ratio commensurately.
Disclosure and reporting
A bank would publicly disclose its leverage ratio every quarter on a standalone and consolidated basis, report it with detailed calculations to RBI’s Department of Supervision quarterly, and make disclosures in Templates LR1 and LR2.
What banks should do
The comment window closed on 28 August 2026. Until final Directions are issued, banks can test their derivative, SFT and off-balance sheet exposures against the draft’s methods; several calculations cross-refer to other draft Directions that are also not yet final.
Questions and answers
What does the draft change?
It proposes to substitute most of Chapter VII (Leverage Ratio framework) of the Reserve Bank of India (Commercial Banks – Prudential Norms on Capital Adequacy) Directions, 2025, to align it with the Basel Committee’s ‘Leverage Ratio 2017 Standard’.
What minimum leverage ratio does the draft text give?
4 per cent for a domestic systemically important bank and 3.5 per cent for other banks. A branch of a global systemically important bank in India is to maintain 3.5 per cent plus the leverage ratio buffer applicable to it as a G-SIB.
How are derivatives counted in the exposure measure?
As 1.4 times the sum of replacement cost and potential future exposure. Collateral received cannot reduce the exposure; cash variation margin can reduce replacement cost only where the conditions in the draft are met.
When would it apply?
The draft proposes 1 April 2027. It is not final: comments were invited till 28 August 2026 and that period has ended.
Published 7 August 2026. Updated 7 October 2026. This report is for general information and is not professional advice. Read the source document before acting on it.