The draft circular proposes to reduce the risk weights applicable to some of the rating categories. This would enable the banks to reduce the capital allocated to such exposures, leading to an improvement in the capitalisation profile of the banks. Capital release from risk weight changes would also help the banks partially negate the impact of proposed expected credit loss (ECL) framework.

• The Reserve Bank of India (RBI) released a draft circular - Reserve Bank of India (Scheduled Commercial Banks - Capital Charge for Credit Risk – Standardised Approach) - on October 7, 2025.
• Key changes include lowering of risk weights for entities rated in the AA, BBB and BB ratings categories and for A1 rating on the short-term scale. However, as per the short-term rating mapping with long-term ratings, the variation across rating categories has increased. For instance, A3 rating maps with BBB rating category, though the risk weights on both these categories are different.