What changed
RBI decided to continue the prudential floor indefinitely, removing the earlier March 31, 2010 deadline. Foreign banks in India and Indian banks with overseas operations must keep their Basel II minimum capital above 80% of Basel I requirements. All other commercial banks (excluding LABs and RRBs) must also comply with the floor as per the Master Circular.
What it means for you
Banks cannot yet fully transition to Basel II without a safety net; the floor ensures capital levels remain robust during parallel run. This adds a compliance burden, especially for internationally active banks, as they must maintain higher capital than Basel II alone would require. Lenders should factor this into capital planning and risk management strategies.
What you must do
- Ensure Basel II minimum capital remains above 80% of Basel I requirement for credit and market risk.
- Continue parallel run of Basel II alongside Basel I until further advice from RBI.
- Monitor capital adequacy ratios closely to avoid breaching the prudential floor.
- Update internal capital adequacy assessment processes to reflect the extended floor.
Who it affects
All scheduled commercial banks (excluding Local Area Banks and Regional Rural Banks), Foreign banks operating in India, Indian banks with overseas branches
What is the prudential floor mentioned in this circular?
It requires banks to maintain Basel II minimum capital at least 80% of the minimum capital computed under Basel I for credit and market risk.
Does this circular apply to all banks?
No, it applies to all scheduled commercial banks except Local Area Banks and Regional Rural Banks.
Is there a new deadline for the parallel run?
No, RBI has decided to continue the prudential floor until further advice, so the parallel run remains ongoing without a fixed end date.