The Reserve Bank of India (RBI) issued final directions on leverage ratio requirements for commercial banks on 23 October, aligning its prudential framework with the latest standard from the Basel Committee on Banking Supervision. The new instructions take effect on 1 April 2027.
The rules were released as the Reserve Bank of India (Commercial Banks – Prudential Norms on Capital Adequacy) Eleventh Amendment Directions, 2026. They set the minimum leverage ratio for global systemically important banks (G-SIBs) in India at 3.5%, the RBI said.
MINIMUM RATIOS BY BANK CATEGORY
Domestic systemically important banks (D-SIBs) must maintain a minimum leverage ratio of 4%, while other commercial banks need 3.5%. D-SIBs include State Bank of India, HDFC Bank and ICICI Bank.
The RBI will impose capital distribution constraints on banks that fail to meet the requirement, including restrictions on the repatriation of profits. The August draft had proposed similar constraints for G-SIB branches that missed their leverage ratio buffer requirements.
RBI REJECTS INDUSTRY REQUESTS
Banks had suggested that the requirement for G-SIBs be aligned with the Basel minimum of 3%, but the RBI rejected the proposal. Stakeholders had also sought more time to implement the new rules, and the RBI turned down that request as well.
The RBI issued the draft directions on 7 August 2026 and invited stakeholder feedback until 28 August 2026. The draft proposed implementing the Basel Committee's 'Leverage Ratio 2017 Standard' framework, with branches of G-SIBs in India to maintain a minimum ratio of 3.5% plus an applicable buffer.
WHAT THE RATIO MEASURES
A bank's leverage ratio measures its Tier 1 capital against its total exposure, which includes both on-balance sheet and off-balance sheet items. It acts as a safeguard against banks expanding their exposures excessively relative to their capital, complementing risk-weighted capital requirements.
The draft proposed including all on-balance sheet assets in the exposure measure, including on-balance sheet derivatives collateral. It also proposed that the RBI could temporarily exempt banks' balances maintained with it from the exposure measure in exceptional macroeconomic circumstances, to facilitate monetary policy implementation. Banks would have to disclose the impact of any such exemption alongside the leverage ratio calculated without it.
EARLIER FLOORS AND CURRENT LEVELS
The 4% and 3.5% minimums for D-SIBs and other banks are not new. The RBI announced them on 6 June 2019 in the Statement on Developmental and Regulatory Policies issued with the Second Bi-Monthly Monetary Policy Statement 2019-20. The October amendment was made to align the capital adequacy directions with the Basel Committee's 2017 leverage ratio standard.
Kotak Mahindra Bank reported a leverage ratio of 16.56% as of 31 March 2026, the highest among Asia-Pacific lenders with at least $100 billion in assets, according to data from S&P Global MarketIntelligence.
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