RBI eases rules for capital adequacy calculations of banks

• The Reserve Bank of India eased norms for banks to include current year profits in their capital adequacy calculations on a quarterly basis by removing an additional qualifying condition.

• As per the current guidelines, banks are permitted to include quarterly profits to capital, albeit with an “additional qualifying condition” related to non-performing assets (NPAs).

• Through a circular, the RBI has amended the provision relating to inclusion of quarterly profits in Common Equity Tier 1 (CET1) capital by a bank.

• The RBI has issued separate amendment directions for commercial banks, small finance banks, and payments banks.

• The Reserve Bank of India (Commercial Banks - Prudential Norms on Capital Adequacy) Fifth Amendment Directions, 2026 said a bank may reckon the profits in the current financial year for capital to risk weighted assets ratio (CRAR) calculation on a quarterly basis subject to certain conditions, including a prescribed formula. 

• There is also a requirement of audit or limited review of financial statements on a quarterly basis. 

• Earlier in April, the RBI had issued draft amendment directions and sought feedback from stakeholders.

• These revised norms are expected to streamline quarterly capital calculations and provide banks with a simpler framework for including quarterly profits in capital adequacy assessments, thereby easing compliance while maintaining financial oversight.

(The author is a trainer for Civil Services aspirants.)