The Reserve Bank of India on Thursday said its revised guidelines on the leverage ratio framework for banks will come into effect from April 1, 2015.

The leverage ratio under the Basel III regulatory framework for banks is defined as their capital measure divided by their exposure measure, with this ratio expressed as a percentage.

Capital measure for the leverage ratio is the Tier-1 capital and exposure measure is the sum of on-balance sheet exposures; derivative exposures; securities financing transaction exposures; and off- balance sheet items.

This ratio is calibrated to act as a credible supplementary measure to the risk based capital requirements and is intended to achieve two objectives.

The first objective is to constrain the build-up of leverage in the banking sector to avoid destabilising deleveraging processes which can damage the broader financial system and the economy. The second objective is to reinforce the risk-based requirements with a simple, non-risk based “backstop” measure.

Currently, the banking system is operating at a leverage ratio of more than 4.5 per cent. The final minimum leverage ratio will be stipulated taking into consideration the final rules prescribed by the Basel Committee by end-2017, the RBI said.

In the run-up to December-end 2017, Reserve Bank will monitor individual banks against an indicative leverage ratio of 4.5 per cent.

Banks operating in India are required to make disclosure of the leverage ratio and its components from April 1, 2015 on a quarterly basis.

The Basel III international regulatory framework for banks is a comprehensive set of reform measures, developed by the Basel Committee on Banking Supervision, to strengthen the regulation, supervision and risk management of the banking sector.

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