RBI rejects banks’ push for lower leverage ratio, retains 3.5% threshold

The Reserve Bank of India (RBI) on Friday finalised rules requiring global systemically important banks (G-SIBs) operating in India to maintain a minimum leverage ratio of 3.5% from April 1, 2027.

The final norms follow a draft proposal issued in August. During consultations, banks had asked the RBI to align the requirement with the 3% minimum prescribed under the Basel framework. The central bank rejected the proposal and retained the higher threshold.

The leverage ratio measures a bank’s Tier 1 capital against its total exposure. It helps assess how much capital a bank has relative to its overall assets and other exposures, providing a safeguard against excessive borrowing.

Under the final rules, banks that fail to meet the prescribed ratio will face restrictions on capital distribution, including limits on repatriating profits.

The RBI also rejected requests from stakeholders to extend the implementation timeline, retaining April 1, 2027, as the effective date.