What changed
RBI has issued the Reserve Bank of India (Commercial Banks - Capital Charge for Credit Risk – Standardised Approach) Directions, 2026, effective April 1, 2027. These directions implement the Basel III final reforms for credit risk under the Standardised Approach, replacing existing guidelines. They cover exposure classes, risk weights, external credit assessments, and credit risk mitigation.
What it means for you
Banks must recalibrate their risk-weighted asset calculations for credit risk using the new Standardised Approach framework. This will impact capital adequacy ratios, requiring systems and process updates for due diligence, rating mapping, and collateral management. Lenders need to review exposure classification and risk weight assignments across all banking book assets.
What you must do
- Review and update credit risk policies and procedures to align with the new Standardised Approach directions.
- Ensure systems are capable of applying revised risk weights for all exposure classes including sovereigns, corporates, retail, MSMEs, and real estate.
- Implement due diligence requirements for exposure classification and external credit assessment usage.
- Update credit risk mitigation frameworks for collateral, guarantees, and netting as per new guidelines.
- Train credit and risk teams on the new rules ahead of the April 1, 2027 effective date.
Who it affects
Commercial banks (excluding Small Finance Banks, Payments Banks, and Local Area Banks), Risk management departments, Credit underwriting teams, Compliance and regulatory reporting functions
When do these directions take effect?
The directions are effective from April 1, 2027, giving banks time to prepare for implementation.
Which banks are covered under these directions?
They apply to commercial banks, including corresponding new banks and State Bank of India, but exclude Small Finance Banks, Payments Banks, and Local Area Banks.
What is the main change from current rules?
These directions implement the Basel III final reforms for credit risk under the Standardised Approach, introducing new risk weights, due diligence norms, and credit risk mitigation rules for banking book exposures.