RBI proposes leverage buffer for branches of global systemically important banks

Mumbai (Maharashtra) [India], August 8 (ANI): The Reserve Bank of India (RBI) has proposed an additional leverage ratio buffer for Indian branches of global systemically important banks (G-SIBs), as part of revised capital adequacy norms aimed at aligning domestic regulations with the latest Basel standards.
Under the draft directions, a branch of a G-SIB operating in India will be required to maintain a minimum leverage ratio of 3.5 per cent, along with the leverage ratio buffer applicable to the parent global bank, including any additional buffer prescribed by its home regulator.
The leverage ratio measures a bank's Tier 1 capital against its overall exposure and acts as a safeguard against excessive borrowing and build-up of leverage.
The RBI has retained the existing minimum leverage ratio of 4 per cent for domestic systemically important banks (D-SIBs) and 3.5 per cent for other banks.
The central bank has also proposed restrictions on capital distributions by a G-SIB branch if it fails to meet its leverage ratio buffer requirement. The restrictions would depend on whether the branch meets its Common Equity Tier 1 (CET1) risk-based capital requirements and leverage ratio requirements.
The proposed changes form part of the draft Reserve Bank of India (Commercial Banks - Prudential Norms on Capital Adequacy) Eleventh Amendment Directions, 2026.
According to RBI, the amendments seek to align India's regulations with the latest leverage ratio framework, referred to as the "Leverage Ratio 2017 Standard", issued by the Basel Committee on Banking Supervision.
The draft also revises the framework for calculating banks' overall leverage exposure, covering on-balance-sheet assets, derivatives, securities financing transactions and off-balance-sheet items.
RBI has proposed detailed treatment of derivative exposures, including replacement cost and potential future exposure. Under the draft, derivative exposure would generally be calculated using a multiplier of 1.4 times the sum of replacement cost and potential future exposure, subject to specified conditions for netting and other adjustments.
The draft also seeks to prevent banks from using transactions or structures that inadequately capture their actual leverage. RBI said supervisory measures in such cases could include additional reporting requirements or requiring the relevant exposure to be covered through a Pillar 2 capital charge.
In exceptional macroeconomic circumstances, RBI may also temporarily exclude balances maintained by banks with the central bank from the leverage ratio exposure measure. However, the minimum leverage ratio requirement would be increased correspondingly to maintain the same level of resilience.
Banks will continue to be required to publicly disclose their Basel III leverage ratios every quarter on both standalone and consolidated bases and report detailed capital and exposure calculations to RBI.
The proposed amendments are scheduled to come into effect from April 1, 2027. RBI has invited comments on the draft directions until August 28, 2026. (ANI)