The Reserve Bank of India has issued new directions implementing the Basel III Standardised Approach for credit risk for commercial banks’ banking book exposures, setting how risk-weighted assets and associated capital charges must be calculated from April 1, 2027. The framework also sets rules for using external credit assessments, due diligence expectations, credit risk mitigation recognition and credit conversion factors for off-balance sheet items. The directions apply to banking companies other than Small Finance Banks, Payments Banks and Local Area Banks, as well as corresponding new banks and the State Bank of India. They specify risk weights across exposure classes including domestic and foreign sovereigns, banks, corporates, retail, MSMEs, real estate, non-performing and Stage 3 assets, securitisation exposures, and equity investments in funds. Key parameters include zero per cent risk weights for Central Government claims and Central Government-guaranteed claims (subject to INR denomination and INR funding), zero per cent for direct State Government exposures with 20 per cent for State Government guarantees, ratings-based tables for foreign sovereigns/central banks and other rated counterparties, and higher risk weights for certain unrated exposures, including a 150 per cent risk weight for unrated corporate and MSME exposures where aggregate banking system exposure exceeds INR 500 crore. Real estate risk weights are set largely by loan-to-value buckets and purpose and include differentiated treatment for up to two housing loans versus the third onward, with an additional five percentage points of risk weight where total loan outstanding is INR 3 crore or above, plus specific treatment for CRE(ADC) and CRE-RH(ADC). From April 1, 2027 the corresponding provisions in the Reserve Bank of India (Commercial Banks – Prudential Norms on Capital Adequacy) Directions, 2025 will be repealed. Certain credit conversion factors for commitments phase in over two stages, with higher factors applying after three years from implementation.
Reserve Bank of India 2026-04-27
Reserve Bank of India issues Standardised Approach credit risk capital charge directions for commercial banks effective April 2027
The Reserve Bank of India has issued new directions implementing the Basel III Standardised Approach for credit risk for commercial banks’ banking book exposures from April 1, 2027, covering calculation of risk-weighted assets, capital charges, use of external credit assessments, due diligence, credit risk mitigation and credit conversion factors. The rules apply to most banking companies, including the State Bank of India, and set detailed risk weights, including zero per cent for specified Central and State Government exposures, ratings-based tables for foreign sovereigns and other rated counterparties, and higher risk weights for certain unrated corporate, MSME and real estate exposures based on thresholds and loan-to-value buckets. From April 1, 2027, corresponding provisions in the Reserve Bank of India (Commercial Banks – Prudential Norms on Capital Adequacy) Directions, 2025 will be repealed, with some credit conversion factors phased in over two stages.