RBI Revises Operational Risk Capital Calculation Rules for Banks from April 1, 2027

The Reserve Bank of India (RBI) has revised the rules for calculating operational risk capital for banks, as per an announcement dated October 23, 2026.  

The new directions will come into force on April 1, 2027, and set out how lenders must classify income, expenses, and losses from different banking activities. 

The business indicator used for the calculation will have three components: Interest, Lease and Dividend Component (ILDC), Services Component (SC) and Financial Component (FC). Banks must classify items according to the descriptions specified by the RBI. 

Interest Income and Expenses 

The ILDC covers interest income from loans and advances, securities, financial and operating leases, hedge accounting derivatives and other interest income.  

Expenses include interest paid on deposits, debt securities and leases, as well as rental expenses, depreciation and impairment of operating leased assets. 

Banks must include gross outstanding loans and advances, interest-bearing securities, including government securities, and leased assets in their year-end interest-earning assets. Non-performing assets must also be included. 

Interest rate derivative assets affecting interest income must be valued at fair value rather than notional value. Banks can include positive fair values but cannot deduct negative fair values. 

Fees and Financial Activities 

The Services Component covers fees and commissions from securities-related services, clearing and settlement, asset management, custody, payment services, structured finance, securitisation servicing, loan commitments, guarantees and foreign transactions. 

Related fee expenses will be included, but outsourcing fees for non-financial services, such as information technology, logistics and human resources, will be excluded. 

Under the Financial Component, banks must separately classify gains and losses from trading book and banking book activities in line with the RBI's capital adequacy directions. 

Operational Loss Calculation 

The loss component for calculating the internal loss multiplier (ILM) will equal 15 times average annual operational risk losses, after deducting recoveries.  

Banks will generally need 10 years of high-quality annual loss data. Those calculating the ILM for the first time may use available records if they have at least five years of qualifying data. 

For damaged or destroyed assets, banks must account for the reduction in book value and remaining clean-up or disposal costs if the asset is not restored. If it is repaired or replaced, the calculation will include the associated costs and additional expenses. 

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Conclusion  

The revised directions take effect on April 1, 2027. The RBI said an indicative mapping of business indicator items to financial statement line items would be provided separately. 

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions. 

Investments in the securities market are subject to market risks, read all the related documents carefully before investing.