RBI's New Rule: SBI, HDFC, ICICI Pay More

How does RBI's leverage ratio use Tier 1 capital and exposure?

Under Basel III, leverage ratio is Tier 1 capital divided by total exposure, which counts both on-balance sheet assets and off-balance sheet items, including derivatives collateral. It is a non-risk-weighted backstop: a higher ratio means more own capital held against every rupee of loaned or exposed funds, regardless of how risky those assets are rated.

Why does RBI exempt central bank balances during stress?

RBI may temporarily exclude banks' balances held with it from the exposure measure in exceptional macroeconomic circumstances, so banks aren't penalised on their leverage ratio for holding reserves while the central bank implements monetary policy. Any bank using this exemption must still disclose its leverage ratio without the exemption applied, preserving comparability.

What happens if a bank misses its leverage ratio buffer?

Under the draft rules, a G-SIB branch that fails to meet its leverage ratio buffer faces capital distribution constraints, restrictions on payouts such as dividends. How severe those constraints are depends jointly on the bank's common equity Tier 1 risk-based ratio and its leverage ratio, not the leverage ratio alone.

How does this leverage rule fit into the wider Basel framework?

Basel's Pillar 1 sets risk-weighted capital ratios (CET1, Tier 1, Total Capital) plus a separate, non-risk-weighted leverage ratio as a backstop against model risk. On top of these minimums, globally systemic banks carry extra surcharges, and jurisdictions add domestic systemically important bank buffers, which is exactly the layer RBI is now enforcing via a simpler ratio for SBI, HDFC and ICICI.

Which G-SIB branches in India face the 3.5% floor?

Branches operating in India of banks designated globally as G-SIBs, that is foreign lenders identified by their home regulators as globally systemically important, must hold the standard 3.5% minimum leverage ratio plus an applicable buffer. This is distinct from SBI, HDFC Bank and ICICI Bank, which are India's own domestically systemically important banks and face the higher 4% floor instead.

How do G-SIB and D-SIB capital rules differ for foreign branches?

A foreign bank with an India branch that is a G-SIB abroad must add a CET1 capital surcharge here too, sized proportionately: the home regulator's G-SIB buffer amount multiplied by its India risk-weighted assets divided by its total global group risk-weighted assets. This scales the extra capital charge to the bank's actual footprint in India rather than applying its full global surcharge.

How were SBI, HDFC Bank and ICICI Bank chosen as India's D-SIBs?

RBI uses a Systemic Importance Score methodology, assessed from bank data, to bucket lenders and assign additional common equity requirements. SBI and ICICI Bank were named D-SIBs in 2015 and 2016 respectively; HDFC Bank joined in 2017 based on March 2017 data. RBI reviews this list at least once every three years to decide who stays classified as systemically important.

When can RBI exempt banks from the exposure measure?

RBI may temporarily exclude a bank's balances held with the central bank from the leverage exposure measure only during exceptional macroeconomic circumstances, to help implement monetary policy smoothly. Banks using this exemption must still disclose the leverage ratio both with and without it, so markets can compare figures on a like-for-like basis.

Why must banks disclose figures both with and without the exemption?

RBI said this is to preserve comparability and transparency across the system: if a bank could report only its exempted, better-looking ratio, analysts and other banks operating without the exemption would not be compared on equal terms, undermining the purpose of a standardised leverage measure.