What changed
RBI issued new directions superseding the October 4, 2021 circular on PDIs in Additional Tier 1 capital for Small Finance Banks. The revised limit for PDIs denominated in foreign currency or rupee-denominated bonds overseas is now set at 1.5% of Risk Weighted Assets, based on the latest audited or limited review financial statements.
What it means for you
Small Finance Banks can now include PDIs in foreign currency or rupee bonds overseas in AT1 capital up to 1.5% of RWAs, providing a clearer and potentially more accessible avenue for raising capital. This change may help SFBs diversify their capital sources and strengthen their capital adequacy under Basel III norms.
What you must do
- Review your current AT1 capital composition to ensure compliance with the new 1.5% of RWAs limit for foreign currency/rupee bond PDIs.
- Update internal capital planning and reporting systems to reflect the revised limit effective October 1, 2025.
- Assess the feasibility of issuing or restructuring PDIs in foreign currency or rupee bonds overseas to optimize capital structure.
- Coordinate with treasury and risk teams to align with the latest audited or limited review financial statements for RWA calculations.
Who it affects
All Small Finance Banks, Treasury and capital management teams at SFBs, Risk and compliance departments at SFBs
What is the new limit for PDIs in foreign currency or rupee bonds overseas for SFBs?
The limit is 1.5% of Risk Weighted Assets, as per the latest available financial statements (audited or subjected to limited review).
When does this direction take effect?
The directions come into force from October 1, 2025.
Does this direction replace any previous circular?
Yes, it supersedes the circular dated October 4, 2021 (DOR.CAP.REC.No.56/21.06.201/2021-22) on the same subject.