What changed
This master circular updates the previous July 2012 version by incorporating instructions issued up to June 30, 2013. The key change is that the circular now applies only to Local Area Banks (LABs), as scheduled commercial banks (excluding RRBs) have been withdrawn from the Basel I framework following the parallel run and prudential floor removal in May 2013.
What it means for you
LABs must continue to comply with Basel I capital adequacy norms, including maintaining minimum capital against credit and market risks using prescribed risk weights. This circular consolidates all relevant instructions, so LABs should refer to this single document for their capital adequacy requirements. Scheduled commercial banks (excluding RRBs) are no longer bound by this framework.
What you must do
- Review and ensure compliance with the consolidated Basel I capital adequacy norms as per this master circular.
- Update internal policies and procedures to reflect that this circular applies only to LABs, not to other scheduled commercial banks.
- Verify that capital components (Tier I and Tier II) meet the prescribed definitions and conditions outlined in the annexes.
- Compute capital adequacy ratio (CRAR) using the risk weights and capital charge methods specified in the circular.
- Maintain documentation for audit and regulatory reporting purposes, referencing this master circular.
Who it affects
Local Area Banks (LABs), RBI supervisory teams monitoring LABs, Compliance officers of LABs
Does this master circular apply to all commercial banks?
No, it applies only to Local Area Banks (LABs). Scheduled commercial banks (excluding RRBs) have been withdrawn from the Basel I framework since May 2013.
What is the purpose of this master circular?
It consolidates all instructions on prudential norms for capital adequacy under Basel I, covering components of capital, risk weights for assets and off-balance sheet exposures, and capital charges for credit and market risks.
What should LABs do if they have questions about specific capital instruments?
Refer to the detailed annexes in the circular, which provide terms and conditions for instruments like perpetual non-cumulative preference shares, innovative perpetual debt, and subordinated debt.