RBI relaxes Leverage Ratio for banks

In order to help the banks expand their lending activities, the RBI has relaxed the leverage ratio (LR). The leverage ratio stands reduced to 4% for Domestic Systemically Important Banks (DSIBs) and 3.5% for other banks.

“Keeping in mind financial stability and with a view to moving further towards harmonization with Basel III standards, it has been decided that the minimum LR should be 4% for Domestic Systemically Important Banks (DSIBs) and 3.5% for other banks,” RBI said in the statement.

The leverage ratio, as defined under Basel-III norms, is Tier-I capital as a percentage of the bank’s exposures. The framework is designed to capture leverage associated with both on- and off-balance sheet exposures.

In this case, a bank’s total exposure is defined as the sum of the following exposures: on-balance sheet exposures; derivative exposures; securities financing transaction exposures; and off-balance sheet items.