RBI issues second amendment to operational risk capital norms for commercial banks

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Operational risk capital amendment

Highlights

The RBI directed that the new framework for calculating operational risk capital under the Basel III Standardised Approach will take effect from 1 April 2027.
The revised guidelines require clear mapping of Business Indicator (BI) components to the schedules and line items in banks’ financial statements.
By incorporating recent clarifications from the Basel Committee on Banking Supervision, the guidelines provide greater clarity for large commercial banks on capital planning, reporting and compliance.

This article was translated from the original. Read the original version by our correspondent here.

Overview of the revised capital framework

As reported in a press release issued by the Reserve Bank of India, the central bank has issued the Reserve Bank of India (Commercial Banks – Forthcoming Instructions) Second Amendment Directions, 2026, establishing the framework for implementing the new Standardised Approach to minimum regulatory capital requirements for operational risk. This amendment follows the directions issued on 28 November 2025, whose Chapter IV stated that the effective implementation date and an indicative mapping of Business Indicator (BI) components to the schedules and line items in financial statements would be provided later.

The RBI has now clarified that the revised Basel III capital adequacy framework for commercial banks, excluding Small Finance Banks, Payment Banks and Regional Rural Banks, will take effect from 1 April 2027. The new amendment sets out the implementation date and includes an indicative mapping of BI components for calculating operational risk capital under the Basel III Standardised Approach.

Impact on and scope of the banking sector

This step comes after the RBI Governor had already announced the timeline for the revised Basel III capital adequacy framework in a statement on October 1, 2025. Additional clarifications subsequently issued by the Basel Committee on Banking Supervision have also been incorporated into these amended directions.

This gives large commercial banks a clearer regulatory reference for complying with operational risk capital requirements, particularly when identifying and mapping BI components in their financial statements. Regulatory clarity will help banks better align implementation preparations, capital planning and reporting processes ahead of the 1 April 2027 deadline.

Our previous report on Indian banks discussed the trend of indirect evergreening, in which some undercapitalised banks delay recognising bad loans by routing funds through related parties. The article noted that such loans may be issued at lower interest rates despite being more prone to default, potentially triggering sharp declines in bank shares and increasing risks to broader financial stability.

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