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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