The amendments expand the prescribed mapping of income, expenses and assets used in the business indicator for operational risk capital calculations. Banks will also apply revised requirements on loss data and the treatment of damaged or destroyed assets.
BKK Bureau, New Delhi | 23 October 2026 | 9:58 PM IST
The Reserve Bank of India (RBI) has amended the operational risk capital requirements applicable to commercial banks, with the revised provisions coming into effect on April 1, 2027. The changes have been issued under the Reserve Bank of India (Commercial Banks – Forthcoming Instructions) Second Amendment Directions, 2026, dated October 23, 2026.
The amendment covers Chapter IV of the RBI’s 2025 directions on minimum capital requirements for operational risk. It replaces and expands parts of the framework dealing with the business indicator, or BI, which is used in the calculation of operational risk capital. The BI is divided into the interest, leases and dividend component (ILDC), the services component (SC), and the financial component (FC).
The revised framework provides additional detail on how banks should classify items used to calculate these components. For ILDC, the specified items include interest income and expenses, interest-earning assets and dividend income. The updated descriptions include rental income from operating leases, depreciation and impairment of operating leased assets, and losses connected with leased assets.
The RBI has also clarified the treatment of interest-rate derivative assets that affect a bank’s interest income. These assets are to be included in interest-earning assets at fair value rather than notional value. Only positive fair value is to be used, and a negative fair value is not to be deducted.
For the services component, the amended table covers fee and commission income from activities such as securities services, clearing and settlement, asset management, custody, payment services, structured finance, securitisation servicing, loan commitments, guarantees and foreign transactions. It also identifies corresponding fee and commission expenses, including certain outsourcing fees paid for financial services.
The amendment separately sets out other operating income and expenses to be included in the business indicator. These include rental income from investment properties, gains or losses on certain non-current assets held for sale, and losses arising from operational risk events. Such losses may include fines, penalties, settlements and replacement costs that were not provided for in earlier years. Expenses related to creating provisions or reserves for operational loss events are also covered.
Under the financial component, banks must account for net profit or loss on the trading book and banking book. Trading-book items include derivatives, debt securities, equity securities, loans and advances, short positions and other assets and liabilities. Banking-book items include fair-value gains or losses, realised gains or losses on specified financial assets and liabilities, hedge-accounting results and exchange differences. The RBI said the bifurcation is to follow the bank’s trading-book and banking-book classifications under the applicable capital-adequacy directions.
The amendment also revises the treatment of a bank’s internal operational risk loss experience. The internal loss multiplier is linked to a loss component equal to 15 times the average annual operational risk losses, net of recoveries. The average is to be calculated using 10 years of high-quality annual operational risk loss data. When a bank first becomes subject to the internal loss multiplier calculation and has fewer than 10 years but at least five years of such data, it may use the available data covering five years or more.
The RBI has further clarified how operational losses should be measured when a bank-owned asset is damaged or destroyed. If the asset is not repaired or replaced, the loss consists of the reduction in book value plus residual clean-up or disposal costs. If it is fully repaired or replaced, the loss is based on the repair or replacement cost and such residual costs. Where an asset is only partially repaired and retains a lower book value, the calculation includes the repair cost, the reduction in post-repair book value relative to the pre-event value, and residual clean-up or disposal costs.
Why it matters
The amendment gives commercial banks more detailed rules for classifying income, expenses, assets and operational losses in their operational risk capital calculations. It also establishes the data history and asset-loss treatment to be used when the revised provisions take effect on April 1, 2027.
Source: Reserve Bank of India
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