Indian banks do not see the Reserve Bank of India’s (RBI) revised operational risk capital rules forcing them to raise fresh capital in the near term. If anything, senior bankers say the new methodology could give capital adequacy ratios a modest lift, although the gain will differ from lender to lender.
On October 23, 2026, the RBI issued the Reserve Bank of India (Commercial Banks – Forthcoming Instructions) Second Amendment Directions, 2026. The amendment fixes April 1, 2027 as the start date for the new Basel III Standardised Approach (Basel III SA) to minimum operational risk capital. It also gives an indicative mapping of Business Indicator (BI) components to line items in banks’ financial statements and adds clarifications issued by the Basel Committee on Banking Supervision. The revised framework covers commercial banks other than small finance banks, payments banks and regional rural banks.
Possible headroom of 10–15 bps
Bankers say lower risk-weighted assets attributed to operational risk could improve capital adequacy ratios by roughly 10 to 15 basis points, provided a bank’s capital base stays the same. That would give lenders some extra room as they grow their loan books. Officials cautioned, however, that this is not a uniform cut in capital requirements. How much a bank benefits will depend on its own operational loss history and on how the revised calculation plays out on its balance sheet.
What changes in the calculation
The framework brings a bank’s past operational losses into the capital charge through the Internal Loss Multiplier (ILM). The loss component is set at 15 times average annual operational risk losses, and the RBI has clarified that these losses will be counted net of recoveries. Banks that have at least five years of high-quality loss data can use it to compute the loss component when a full 10-year history is not available.
The RBI has also clarified how interest-rate derivative assets that affect interest income should be treated. They must be included in interest-earning assets at positive fair value instead of notional value, and negative fair values are not deducted.
Part of a larger April 2027 overhaul
The operational risk amendment is one piece of a wider set of capital and provisioning changes that all take effect from April 1, 2027. Earlier this year the RBI issued directions on the standardised approach for credit risk in April and on minimum capital requirements for market risk in September. It has also brought in directions on expected credit loss (ECL)-based provisioning.
Bankers note that while lower operational risk charges may ease capital ratios, a bank with a heavy history of operational losses could face a higher charge. The move to ECL-based provisioning could also put fresh pressure on capital from April. The net effect will become clearer as each bank runs the numbers under the new rules over the coming months.
