What changed
The RBI replaced the definition of 'owned fund' to explicitly include quarterly profits (subject to limited review and dividend adjustment) and exclude ROU assets for tangible leases. It also added that Tier 1 capital for credit/investment concentration compliance must be based on the MGC's most recent audited or limited-review financial statements.
What it means for you
MGCs can now include quarterly profits in Owned Fund, boosting capital base, but must deduct losses and adjust for dividends. The Tier 1 capital clarification ensures concentration norms are applied consistently using current financials, reducing ambiguity. Banks dealing with MGCs should expect more transparent capital reporting.
What you must do
- Update internal systems to compute Owned Fund including quarterly profits as per the new formula.
- Ensure quarterly financials are subjected to limited review or audit by statutory auditors.
- Verify that Tier 1 capital for concentration norms is sourced from the latest audited or reviewed statements.
- Review lease accounting to confirm ROU assets for tangible leases are not deducted from Owned Fund.
Who it affects
Mortgage Guarantee Companies, Banks with exposure to MGCs, Statutory auditors of MGCs
Can MGCs include quarterly profits in Owned Fund immediately?
Yes, effective March 10, 2026, provided the financials are subject to limited review/audit and profits are reduced by average dividends of the last three years.
How is Tier 1 capital determined for concentration norms under the amendment?
Tier 1 capital must be based on the MGC's latest available financial statements, either audited or subject to limited review, as defined in the Master Direction.