How much capital must an Indian lender hold?
The minimum capital to risk weighted assets ratio, by kind of licence.
Short answer. It depends on the licence. A small finance bank and a finance company in the middle layer or above must hold 15 per cent. An urban co-operative bank in Tiers 2 to 4 must hold 12 per cent. Most other banks must hold 9 per cent.
The rule, lender by lender
| Kind of lender | What the rule says |
|---|---|
| Small finance bank | The Pillar 1 capital ratio must stay at fifteen per cent at all times. Read the rule |
| Finance company, middle layer and above | A finance company in the middle layer or above must hold fifteen per cent capital. Read the rule |
| Urban co-operative bank, Tiers 2 to 4 | A bank in Tiers 2 to 4 must hold twelve per cent capital. Read the rule |
| Urban co-operative bank, Tier 1 | A Tier 1 bank working in a single district needs two crore rupees of net worth. Read the rule |
| Rural co-operative bank | A rural co-operative bank must hold nine per cent capital at all times. Read the rule |
| Regional rural bank | A regional rural bank must hold nine per cent capital at all times. Read the rule |
| Local area bank | Tier 2 capital may never be larger than Tier 1 capital. Read the rule |
What else the rule says
- Capital for this purpose is Tier 1 and Tier 2 only. Nothing else counts. · source
- Tier 2 capital may never be larger than Tier 1 capital. · source
- Inside the 15 per cent figure, Tier 2 capital counts only up to 7.5 per cent. · source
- The leverage ratio must be at least 4.5 per cent. · source
- Of that, at least ten per cent of risk weighted assets must be Tier 1. · source
- An upper layer company must also hold nine per cent common equity Tier 1. · source
- A Tier 1 bank working in a single district needs two crore rupees of net worth. · source
- A bank short of the net worth must reach half of it by 31 March 2026. · source
Where this comes from
- Reserve Bank of India (Small Finance Banks – Prudential Norms on Capital Adequacy) Directions, 2025 (Updated as on July 01, 2026)
- Reserve Bank of India (Non-Banking Financial Companies – Prudential Norms on Capital Adequacy) Directions, 2025 (Updated as on July 01, 2026)
- Reserve Bank of India (Urban Co-operative Banks - Prudential Norms on Capital Adequacy) Directions, 2025 (Updated as on June 16, 2026)
- Reserve Bank of India (Rural Co-operative Banks – Prudential Norms on Capital Adequacy) Directions, 2025 (Updated as on May 15, 2026)
- Reserve Bank of India (Regional Rural Banks - Prudential Norms on Capital Adequacy) Directions, 2025 (Updated as on June 16, 2026)
- Reserve Bank of India (Local Area Banks – Prudential Norms on Capital Adequacy) Directions, 2025
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Plain-language summary, not the official text. Not legal advice. Every line above is a point published on the rule page it links to. · Report a mistake