What changed
The RBI has revised the eligible limit for PDIs denominated in foreign currency or rupee-denominated bonds overseas that can be included in Additional Tier 1 (AT1) capital. The new limit is set at 1.5% of Risk Weighted Assets (RWAs), replacing the previous limit from the October 4, 2021 circular. This change takes effect from October 1, 2025.
What it means for you
Banks can now raise more AT1 capital through foreign currency or overseas rupee bonds, up to 1.5% of RWAs, potentially easing capital-raising constraints. This provides greater flexibility for banks to diversify their capital sources and manage foreign currency exposure. Lenders should reassess their capital planning strategies to leverage this increased headroom.
What you must do
- Update internal capital adequacy policies to reflect the new 1.5% of RWAs limit for foreign currency/rupee-denominated PDIs.
- Review current AT1 capital composition and identify opportunities to issue additional PDIs in foreign currency or overseas rupee bonds.
- Ensure compliance with Basel III guidelines and reporting requirements for AT1 instruments under the revised limit.
- Communicate the change to treasury and risk management teams for capital planning and funding strategies.
Who it affects
All Scheduled Commercial Banks (excluding Small Finance Banks, Payments Banks, and Regional Rural Banks), Treasury and capital management teams, Risk management departments
What is the new limit for PDIs in foreign currency/rupee bonds overseas?
The new limit is 1.5% of Risk Weighted Assets (RWAs) as per the latest audited or limited review financial statements, effective October 1, 2025.
Does this direction replace the earlier 2021 circular?
Yes, this direction supersedes the circular dated October 4, 2021 (DOR.CAP.REC.No.56/21.06.201/2021-22) on the same subject.
Which banks are covered under this direction?
All Scheduled Commercial Banks except Small Finance Banks, Payments Banks, and Regional Rural Banks are covered.