Key change: The Reserve Bank of India has finalised the Reserve Bank of India (Commercial Banks – Prudential Norms on Capital Adequacy) Eleventh Amendment Directions, 2026, implementing the Basel Committee's leverage ratio 2017 standard for Indian commercial banks — effective 1 April 2027. Minimum ratio: 4% for D-SIBs, 3.5% for all other banks.
What happened
On 23 October 2026, the Reserve Bank of India released the Reserve Bank of India (Commercial Banks – Prudential Norms on Capital Adequacy) Eleventh Amendment Directions, 2026 (RBI/2026-27/297; DOR.CAP.REC.251/21-02-002/2026-27), announced via Press Release 2026-2027/1376.
This is the final version of a framework RBI first put out for public comment on 7 August 2026 (Press Release 2026-2027/835), with feedback invited until 28 August 2026. RBI says the feedback received on the draft has been examined and "consequent modifications have been suitably incorporated" in the final directions — and it has published a statement on the feedback alongside. The amended chapter rewrites Chapter VII (Leverage Ratio framework) of the 2025 Capital Adequacy Directions to align India with the Basel Committee's "leverage ratio 2017 standard".
The directions are issued under Section 35A of the Banking Regulation Act, 1949, and will come into effect from 1 April 2027 — the same go-live date the RBI Governor announced for the revised Basel III capital adequacy framework.
Already covered the draft? We published a detailed breakdown of the August 2026 draft when it was released for consultation. This article covers the final directions — what was kept, what the final calibration is, and what banks must now implement before 1 April 2027.
What the leverage ratio is — and why RBI is rewriting it
The Basel III leverage ratio is deliberately simple: Tier 1 capital ÷ total exposure, expressed as a percentage. Unlike risk-weighted capital ratios — where a bank's assets are weighted by how "safe" models say they are — the leverage ratio is a non-risk-sensitive backstop. It caps how much a bank can borrow against its capital base no matter how safe its assets look on paper.
The Basel Committee's 2017 standard made the exposure measure far more granular — especially for derivatives, securities financing transactions (SFTs) and off-balance-sheet items, the three areas where pre-2017 rules let significant leverage hide. RBI's final directions transplant that updated template into Indian regulation.
The final calibration: who must hold what
Three operating rules come with the ratio, straight from the final text:
- Measured at quarter-end — both the capital measure and the exposure measure are calculated on a quarter-end basis, though a bank may use more frequent (daily/monthly) averaging with RBI's approval, applied consistently.
- Met at all times — the minimum is not a reporting-date formality; a bank must meet it continuously.
- Same consolidation scope as the risk-based capital framework — no separate consolidation exercise just for leverage.
G-SIB branches: capital distribution constraints
A G-SIB branch that fails to meet its leverage ratio buffer faces capital distribution constraints — restrictions on payouts that tighten as the shortfall deepens. The directions tabulate the minimum conservation standards (as a percentage of earnings to be retained) for a branch in the first higher-loss-absorbency bucket:
A branch meeting both its CET1 risk-based requirement (5.5% minimum + 2.5% conservation buffer + G-SIB higher-loss-absorbency + countercyclical buffer, if any) and its Tier 1 leverage requirement (3.5% + G-SIB buffer) faces no conservation standard. Missing one triggers the associated standard; missing both triggers the higher of the two.
How the exposure measure is built (final text)
The total leverage exposure is the sum of four buckets: on-balance-sheet exposures, derivative exposures, SFT exposures, and off-balance-sheet items. The core measurement principles in the final directions:
- Gross accounting values rule. The exposure measure generally follows gross accounting values. Banks may not net assets against liabilities, and may not use collateral, guarantees or other credit-risk mitigation to shrink the exposure — except where a specific carve-out applies (e.g. eligible netting for SFTs and derivatives).
- Deductions mirror Tier 1. Items deducted from Tier 1 capital (e.g. certain investments in unconsolidated financial entities, prudent valuation adjustments) are also deducted from the exposure measure. But liability items are never deducted — fair-value gains/losses on a bank's own liabilities stay in.
- Securitisation discipline. An originating bank may exclude securitised exposures only if the transaction meets the operational risk-transfer conditions; retained exposures stay in regardless. Failed risk transfer — including synthetic securitisations — keeps the whole exposure in the measure.
- Anti-gaming watchlist. RBI names the structures it will treat as red flags: SFTs where counterparty exposure rises as credit quality falls, principal-to-agency flips done purely for leverage treatment, collateral swaps engineered to dodge inclusion, and off-balance-sheet structures used to move assets out. Supervisory responses can include enhanced reporting or a Pillar 2 capital charge.
- Central-bank-reserves escape hatch. In exceptional macroeconomic circumstances, RBI may temporarily exempt central bank reserves from the exposure measure — but must raise the minimum ratio commensurately to keep resilience unchanged, and banks must disclose the ratio with and without the exemption.
The final text also settles operational detail on unsettled trades (trade-date vs settlement-date accounting), cash pooling arrangements (single-balance treatment only where strict legal and operational conditions are met), and fiduciary assets (excluded only where accounting derecognition criteria are satisfied).
Old vs new: draft to final
Who is affected and what to do next
Every commercial bank under the Capital Adequacy Directions, 2025 must comply — D-SIBs face the higher 4% bar, and Indian branches of G-SIBs must layer the buffer and conservation framework on top. With effect from 1 April 2027, capital planning, treasury and risk teams should:
- Re-map the exposure computation to the final paragraphs 262–270 — derivatives (alpha 1.4 × (RC + PFE) framework), SFTs and OBS conversion factors all change.
- Rebuild Pillar 3 reporting around the new LR1 (asset-to-exposure reconciliation) and LR2 (granular exposure breakdown) templates.
- Stress the G-SIB branch buffer — branches should model the conservation-ratio table against their earnings-distribution plans.
- Audit for red-flag structures — SFT netting, agency-model clearing and collateral-swap treatments that were acceptable under the old chapter may now draw Pillar 2 charges.
The bigger picture: 23 October 2026 was a Basel-finalisation double-header from RBI — alongside these leverage-ratio directions, RBI issued the Second Amendment Directions, 2026 on operational-risk capital (Basel III Standardised Approach). With credit-risk, market-risk and counterparty-credit-risk finalisations already out through 2026, the 1 April 2027 Basel III go-live is now substantially locked in.
FAQs
Q: What did RBI finalise on 23 October 2026?
The Reserve Bank of India (Commercial Banks – Prudential Norms on Capital Adequacy) Eleventh Amendment Directions, 2026 (RBI/2026-27/297), implementing the Basel Committee's leverage ratio 2017 standard. It finalises the draft issued 7 August 2026 after examining public feedback, and takes effect on 1 April 2027.
Q: What is the minimum leverage ratio now?
4% for domestic systemically important banks (D-SIBs) and 3.5% for all other commercial banks. An Indian branch of a G-SIB must maintain 3.5% plus the applicable G-SIB leverage ratio buffer, with capital distribution constraints if the buffer is breached.
Q: How is the ratio measured?
Tier 1 capital (numerator) divided by the total exposure measure (denominator), as a percentage. Both are computed quarter-end (more frequent averaging allowed with RBI approval), and the minimum must be met at all times.
Q: What goes into the exposure measure?
Four buckets: on-balance-sheet exposures, derivative exposures, SFT exposures and off-balance-sheet items — measured at gross accounting values, with no netting of assets against liabilities and no credit-risk mitigation recognised except in specified carve-outs.
Q: Did the site cover the draft?
Yes — our August 2026 draft breakdown walked through the consultation text paragraph by paragraph. This article covers the final directions — the version banks must actually implement.
Sources
- RBI Notification — Reserve Bank of India (Commercial Banks – Prudential Norms on Capital Adequacy) Eleventh Amendment Directions, 2026 (RBI/2026-27/297, DOR.CAP.REC.251/21-02-002/2026-27, 23 Oct 2026; full official text): rbi.org.in/scripts/NotificationUser.aspx?Id=13743
- RBI Press Release 2026-2027/1376 (23 Oct 2026) — "RBI issues guidelines on the implementation of Leverage Ratio 2017 Standard": rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=63854
- RBI draft Amendment Directions (7 Aug 2026, PR 2026-2027/835) — background; our draft-stage coverage: corplawupdates.in draft breakdown
Verified against the official RBI notification and press release dated 23 October 2026. Last verified: 23 October 2026.
