What changed
Previously, ROU assets were treated as intangible assets and deducted from regulatory capital. The RBI now clarifies that ROU assets from tangible asset leases are not deducted from Owned Fund, CET1, or Tier 1 capital, and must be risk-weighted at 100%.
What it means for you
This change frees up regulatory capital for lessees, as ROU assets no longer reduce capital ratios. Banks and lenders must ensure ROU assets are correctly classified and risk-weighted, impacting capital adequacy calculations positively for those with significant leased tangible assets.
What you must do
- Review your balance sheet to identify ROU assets from tangible asset leases.
- Stop deducting these ROU assets from Owned Fund, CET1, or Tier 1 capital calculations.
- Apply a 100% risk weight to all such ROU assets.
- Update internal capital adequacy policies and reporting systems accordingly.
- Ensure compliance with the updated Master Directions for your entity type.
Who it affects
All NBFCs (including HFCs) implementing Ind AS, Asset Reconstruction Companies (ARCs) implementing Ind AS
Does this circular apply to all NBFCs or only those using Ind AS?
It applies to all NBFCs (including HFCs) and ARCs that implement the Companies (Indian Accounting Standards) Rules, 2015.
What if the underlying leased asset is intangible?
The clarification only covers ROU assets where the underlying leased asset is tangible. For intangible assets, existing deduction rules may still apply.
When does this circular take effect?
The circular is applicable with immediate effect from March 21, 2025.