What happened
The Reserve Bank of India (RBI) on 23 October 2026 issued the Commercial Banks (Forthcoming Instructions) Second Amendment Directions, 2026. They fix 1 April 2027 as the date from which commercial banks must follow the new Standardised Approach for minimum operational risk capital, along with the amendments in the document.
Operational risk is the risk of losses from failed internal processes, people, systems or external events. Banks must hold a minimum amount of capital against it, called operational risk capital (ORC).
The directions were issued under Section 35A of the Banking Regulation Act, 1949. They amend Chapter IV of the Directions issued on 28 November 2025, which had left the start date and the mapping of items to be announced later.
Key changes
- Mapping of the Business Indicator (BI): The BI is built from three parts: the interest, lease and dividend component, the services component and the financial component. The amended table describes each item and lists typical sub-items. It adds an indicative mapping to schedules of the balance sheet and profit and loss account. A fuller mapping is to be given in due course.
- Derivatives in interest earning assets: Interest rate derivative assets that affect interest income are to be included at fair value, not notional value (the face amount of the contract). The fair value used must be positive, and a negative value is not subtracted.
- Loss data: A bank’s own loss history feeds into ORC through the Internal Loss Multiplier. The Loss Component is 15 times the average annual operational risk losses, net of recoveries. It is based on 10 years of high-quality data. A bank first subject to the calculation without 10 years, but with at least five years, can use that shorter record.
- Damaged assets: New explanations say how to count the loss when a bank’s asset is damaged or destroyed, depending on whether the bank does not replace it, replaces or fully repairs it, or repairs it partly.
If the accounting treatment under the financial statements directions differs from these directions, banks must follow these directions for computing ORC.
What it means for you
The directions apply to banks’ internal capital calculations, so there is no direct change to your deposits, loans or charges. The framework is meant to make the capital banks hold against operational losses more standardised.
If you hold a bank’s shares or follow bank results, expect disclosures and capital figures to be prepared under the new method from April 2027. The RBI has not stated any effect on lending rates or fees.
Background
In his statement of 1 October 2025, the RBI Governor announced that the revised Basel III capital adequacy framework would apply to commercial banks from 1 April 2027. Small Finance Banks, Payments Banks and Regional Rural Banks are excluded. The RBI said the Basel Committee on Banking Supervision had also issued additional clarifications since the 2025 directions, which are reflected in the amendment.
The RBI recently also acted on bank rules elsewhere, such as scrapping non-option derivative limits for commercial and small finance banks. Operational risk capital also relies on accounting concepts such as book value and dividend income, both of which feature in the new tables.
