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RBI clarifies Owned Fund computation for HFCs

Current · Source: Reserve Bank of India · RBI/2025-26/228 · issued 10 Mar 2026 · ~2 min read
Quick answerRBI has amended the HFC Master Directions to clarify that Owned Fund includes quarterly profits (subject to limited review and dividend adjustment) and excludes ROU assets for tangible leases. This standardizes capital computation for housing finance companies.
The rule, in the simplest words
How it plays out — a real example

A branch operations officer in Indore, Rohan, is thrilled to learn that his HFC can now include quarterly profits in their Owned Fund. He ensures that the financial statements undergo a limited review/audit by statutory auditors and calculates the eligible profit using the formula EP_t = NP_t - 0.25*D*t. This boost in Owned Fund helps Rohan's HFC meet the capital adequacy ratios, making it a more attractive counterparty for banks.

What changed

Paragraph 10(16) of the Master Directions is replaced with a detailed definition of Owned Fund. Quarterly profits can now be included, but only after a limited review/audit and after deducting 25% of the average dividend paid over the last three years. Right-of-Use (ROU) assets from tangible leases are no longer deducted from Owned Fund.

What it means for you

HFCs can now bolster their Owned Fund with quarterly profits, improving capital adequacy ratios if they meet audit and dividend adjustment conditions. The exclusion of ROU assets for tangible leases reduces capital erosion, easing compliance with net worth requirements. Banks lending to or investing in HFCs should reassess counterparty capital strength under the new formula.

What you must do

Who it affects

All Housing Finance Companies (HFCs), Statutory auditors of HFCs, Banks with exposure to HFCs (lending or investment)

❓ Common questions

Can HFCs include quarterly profits in Owned Fund without audit?

No, inclusion requires that quarterly financial statements undergo a limited review or audit by the statutory auditors.

How is the dividend adjustment calculated for quarterly profit inclusion?

Eligible profit for quarter 't' is net profit up to that quarter minus 0.25 times the average dividend paid over the last three financial years.

Are ROU assets for intangible leases also excluded from Owned Fund deduction?

No, the exclusion applies only to ROU assets where the underlying leased asset is tangible.

📜 Read the original circular — full text as issued by RBI
RBI/2025-26/228 DOR.CAP.REC.No.418/21.01.002/2025-26 March 10, 2026 All Housing Finance Companies (HFCs) Dear Sir / Madam, Reserve Bank of India (Housing Finance Companies) Amendment Directions, 2026 The Reserve Bank had issued the Reserve Bank of India (Housing Finance Companies) Directions, 2025 (hereafter referred as the ‘Master Directions’), on November 28, 2025, as amended from time to time. There is a need to further amend the same to provide clarification on the components reckoned in the computation of Owned Fund. 2. Accordingly, in exercise of the powers conferred under Sections 45L and 45MA of the Reserve Bank of India Act, 1934 and Sections 30, 30A, 32, and 33 of the National Housing Bank Act, 1987, and of all powers enabling it in this behalf, the Reserve Bank having considered it necessary in the public interest, and being satisfied that, for the purpose of enabling the Reserve Bank to regulate the financial system to the advantage of the country so to do, hereby, issues to every HFC the following Amendment Directions. 3. These Directions shall be called the Reserve Bank of India (Housing Finance Companies) Amendment Directions, 2026. 4. These Amendment Directions shall come into force with immediate effect. 5. These Amendment Directions modify the Master Direction mentioned as under: Paragraph 10(16) shall be replaced by: “10(16) “Owned Fund” means paid up equity capital, preference shares which are compulsorily convertible into equity, free reserves including quarterly profits, balance in share premium account, and capital reserves representing surplus arising out of sale proceeds of asset, excluding reserves created by revaluation of asset, as reduced by accumulated loss balance, book value of intangible assets and deferred revenue expenditure, if any. Inclusion of quarterly profits shall be subject to the following conditions: (i) The financial statements shall be subjected to limited review / audit on a quarterly basis by the statutory auditors. (ii) Such profits shall be reduced by average dividend paid in the last three years and the amount which can be reckoned for inclusion would be arrived at as under: EP t = NP t - 0.25 *D*t Where: EP t = Eligible profit up to quarter ‘t’ of the current financial year, t varies from 1 to 4 NP t = Net profit up to quarter ‘t’ D = average dividend paid for / pertaining to the last three financial years Losses in the current year shall be fully deducted from Owned Fund. The HFC shall not be required to deduct a Right-of-Use (ROU) asset (created in terms of Ind AS 116-Leases) from Owned Fund, provided the underlying asset being taken on lease is a tangible asset.” Yours faithfully, Sunil T S Nair Chief General Manager
Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2025-26/228 · issued 10 Mar 2026. The plain-English explanation above is BankPulse’s own independent summary.
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Who does what — compliance checklist
💻 IT / Systems
  • Update internal capital computation models to include quarterly profits as per the new formula (EP_t = NP_t - 0.25*D*t).
📜 Compliance
  • Ensure quarterly financial statements undergo limited review/audit by statutory auditors to qualify for profit inclusion.
  • Review and adjust Owned Fund calculations by removing ROU assets for tangible leases from deductions.
  • Communicate the revised Owned Fund definition to risk and compliance teams for accurate regulatory reporting.
Grouped from the action items above — a single circular may involve more than one team.
Worked example & action-note template

Example: if you are an IT/Systems lead at a bank this circular applies to (All Housing Finance Companies (HFCs), Statutory auditors of HFCs, Banks with exposure to HFCs (lending or investment)), your first concrete step on “RBI clarifies Owned Fund computation for HFCs” is: “Update internal capital computation models to include quarterly profits as per the new formula (EP_t = NP_t - 0.25*D*t).” (RBI issued this 10 Mar 2026).

  1. Circular: RBI/2025-26/228 -- RBI clarifies Owned Fund computation for HFCs
  2. Issued: 10 Mar 2026
  3. Action required: Update internal capital computation models to include quarterly profits as per the new formula (EP_t = NP_t - 0.25*D*t).
  4. Action required: Ensure quarterly financial statements undergo limited review/audit by statutory auditors to qualify for profit inclusion.
  5. Action required: Review and adjust Owned Fund calculations by removing ROU assets for tangible leases from deductions.
  6. Action required: Communicate the revised Owned Fund definition to risk and compliance teams for accurate regulatory reporting.
  7. Owner: ____________ Target date: ____________
  8. Board/committee approval needed? Y / N
  9. Evidence filed in compliance register on: ____________
Built only from this circular’s own published fields — not legal advice; always confirm against the official RBI source.

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BankPulse Compliance Evidence Pack — generated 02 Aug 2026 · status cross-checked against RBI’s official withdrawal register (refreshed weekly).
Official RBI source: https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=13313&Mode=0 — Plain-English summary by BankPulse (bankpulse.ai), reviewed by our expert reviewer, CA Amit Jain. Independent platform, not affiliated with the Reserve Bank of India; is our own plain-English paraphrase, not RBI’s original wording.
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