Basel III standardised approach for Indian banks

The Reserve Bank of India (RBI) has issued the Commercial Banks – Capital Charge for Credit Risk – Standardised Approach Directions, 2026, effective from 1 April 2027 for the banking book of commercial banks, excluding Small Finance Banks, Payments Banks and Local Area Banks. They replace the existing standardised credit risk framework and operationalise the Basel III final reforms in India.

This thought leadership outlines the key elements of the revised Standardised Approach (SA) for credit risk, the key regulatory changes, and the resulting implications for banks.

The revised framework introduces enhanced granularity and risk sensitivity across exposure classes through differentiated risk weights, use of external rating-based approach for banks, increased capital charges for riskier segments, greater differentiation within CRE and RRE exposures and incremental capital requirement for unhedged foreign currency exposures, while ensuring differential treatment for segments such as MSMEs and regulatory retail exposures.

Key implementation challenges arising from the directions include:

Data

Banks must capture additional customer and exposure‑level data which may not be available in systems for the existing book
Methodology

Banks must update policies for revised classification and RW assignment and make decisions basis data available and impact potential
Impact

The revised requirements may materially change RWAs at segment level requiring banks to quantify portfolio‑level capital impact and reassess risk appetite and related risk indicators
People

Banks will face constraints linked to availability of skilled resources for implementation and BAU processes
System

System changes required across core banking, risk, collateral, treasury and reporting platforms will need to be assessed and implemented by the banks

Beyond regulatory capital, the impact of the revised Directions also extends to ICAAP models, stress testing practices, pricing frameworks, limit setting and risk appetite calibration, requiring banks to prepare for an orderly and well governed transition by April 2027. These considerations will need to be embedded across banks’ internal risk management and decision making frameworks.

Basel III standardised approach for Indian banks

RBI’s Credit Risk (SA) 2026 directions enhance risk sensitivity and consistency in credit risk capital requirements for commercial banks in India

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Key Contacts

Rajosik Banerjee

Partner and Deputy Head, Risk Advisory and Head Financial Risk Management

KPMG in India

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Amitava Mukherjee

Partner, Financial Risk Management

KPMG in India

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Somdeb Sengupta

Partner, Financial Risk Management

KPMG in India

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Basel III Standardised Approach – Credit and Operational risk

RBI during the MPC, has proposed to implement revised Basel III capital adequacy norms for SCBs (excluding small finance banks, payment banks and regional rural banks) effective from 1 April 2027.

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