RBI Revises Leverage Ratio Requirements for Banks in India
RBI revised regulation on the implementation of leverage ratio for banks in India, under the Basel III capital regulations. RBI has decided that the minimum leverage ratio shall be 4% for domestic systemically important banks (D-SIBs) and 3.5% for other banks. These guidelines shall be effective from the quarter commencing October 01, 2019.
The leverage ratio is calibrated to act as a credible supplementary measure to the risk-based capital requirements and is intended to constrain the build-up of leverage in the banking sector to avoid destabilizing deleveraging processes, which can damage the broader financial system and the economy. The leverage ratio is also intended to reinforce the risk-based requirements with a simple, non-risk based “backstop” measure. The capital measure used for the leverage ratio at a point in time is the tier 1 capital measure applying at that time under the risk-based framework. The exposure measure for the leverage ratio should generally follow the accounting value and amounts to the sum of on-balance sheet exposures, derivative exposures, securities financing transaction exposures, and off- balance sheet items. Both the capital measure and the exposure measure, along with the leverage ratio, are to be disclosed on a quarter-end basis. However, banks must meet the minimum leverage ratio requirement at all times.
Effective Date: Quarter Commencing October 01, 2019
Keywords: Asia Pacific, India, Banking, Basel III, Leverage Ratio, Regulatory Capital, D-SIBs, Systemic Risk, RBI
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