RBI Revises Leverage Ratio Framework for Commercial Banks: Key Changes Under the Eleventh Amendment Directions, 2026
On 23 October 2026, the Reserve Bank of India (RBI) issued the Reserve Bank of India (Commercial Banks – Prudential Norms on Capital Adequacy) Eleventh Amendment Directions, 2026. The amendment revises Chapter VII of the 2025 Directions to align India’s leverage ratio framework with the Basel Committee on Banking Supervision’s Leverage Ratio 2017 Standard. The revised framework will come into effect on 1 April 2027.
The amendment focuses on improving the measurement of banks total exposures, strengthening regulatory consistency and enhancing transparency in capital reporting. Although the general minimum leverage ratio thresholds remain unchanged, the revised methodology may affect how banks calculate and report their exposures.
Statutory Basis and Understanding of the Leverage Ratio
The amendment has been issued under Section 35A of the Banking Regulation Act, 1949, which empowers the RBI to issue directions to banking companies in the public interest, in the interest of banking policy and in appropriate circumstances to protect depositors and ensure proper banking operations.
The leverage ratio measures whether a bank has sufficient capital to support its overall financial exposures. It is calculated by comparing Tier 1 capital, which represents a bank’s core regulatory capital, with its total exposure. Unlike risk based capital requirements, this ratio does not primarily depend on the risk weight assigned to individual assets. It provides an additional safeguard against excessive borrowing and balance sheet expansion, helping ensure that banks maintain adequate capital even when their assets carry relatively low risk weights.
Under the amended Directions, Domestic Systemically Important Banks (D-SIBs) must maintain a minimum leverage ratio of 4%, while other banks must maintain 3.5%. Indian branches of Global Systemically Important Banks (G-SIBs) must maintain 3.5% plus the applicable additional buffer.
Key Changes Introduced by the Amendment
- Clearer Calculation of Total Exposure: The amendment clarifies how banks must calculate the total exposure used to determine their leverage ratios. This includes assets recorded on their balance sheets and certain other transactions that create financial obligations. Banks must follow the prescribed measurement rules rather than relying solely on how transactions appear in their accounts. This helps the RBI obtain a more consistent picture of each bank’s overall financial exposure.
- Revised Treatment of Derivative Transactions: Derivatives are financial contracts whose value depends on an underlying asset, currency, interest rate or another financial variable. The amendment clarifies how banks must calculate the exposure arising from these transactions, including potential losses if a counterparty fails to meet its obligations. It also addresses the treatment of collateral and arrangements between counterparties. Banks cannot automatically deduct all collateral received to reduce their reported leverage exposure. These provisions help prevent the understatement of exposures arising from complex financial transactions.
- Securities Financing and Off-Balance Sheet Exposures: The amendment clarifies how securities financing transactions, including repurchase agreements, reverse repurchase agreements and securities lending, must be measured. It also requires certain off balance sheet commitments to be included in the leverage ratio calculation. These may include financial commitments that have not yet resulted in an actual loan but could create an obligation in the future. This ensures that the calculation reflects relevant financial obligations beyond conventional balance sheet assets.
- Improved Reporting and Disclosure: Banks must disclose their leverage ratios quarterly on both standalone and consolidated bases and submit the relevant calculations to the RBI’s Department of Supervision. The amendment also introduces revised disclosure requirements through Templates LR1 and LR2 under the Pillar 3 framework. These templates require banks to provide more detailed information about their capital and the exposures used in calculating the leverage ratio, improving transparency for regulators and other stakeholders.
Implementation and Compliance Priorities
The Directions further strengthen disclosure and supervisory reporting requirements. Banks must compute the leverage ratio on a quarter end basis and ensure that systems and processes are adequately geared to capture the revised exposure definitions accurately. Failure to maintain the prescribed ratio may attract supervisory measures, including enhanced monitoring, operational restrictions, or additional capital charges under the Pillar 2 framework.
From a compliance perspective, the transition period until 1 April 2027 provides banks with a reasonable window to recalibrate internal models, update systems, review exposure measurement methodologies, and train relevant personnel. Banks would be well advised to conduct gap assessments against the new requirements and engage with their boards and risk committees on the capital and strategic implications of the revised framework.
Strategic Impact on Banking Resilience and Governance
The revised framework will require banks to review their existing procedures for calculating exposures and preparing regulatory reports. Banks with substantial derivative transactions, securities financing arrangements or off balance sheet commitments may need to make particular adjustments to their systems. Banks should also ensure that their finance, risk management and compliance teams use consistent information when preparing reports. The period before 1 April 2027 provides an opportunity to identify gaps, update internal procedures and prepare for the revised requirements.
The amendment represents a further step towards aligning India’s banking regulations with international standards. By clarifying exposure calculations and strengthening reporting requirements, the RBI seeks to improve the assessment of banks’ financial positions and ensure that adequate capital is maintained against their overall exposures.
