Reserve Bank of India (All India Financial Institutions - Prudential Norms on Capital Adequacy) Directions, 2025 (Updated as on June 16, 2026)

1. Start date

These Directions took effect on the day RBI issued them.

BankPulse example. There is no gap here between issue and effect. The Directions come into effect immediately upon issuance. A bank cannot wait for a separate start date, because there is none.

2. In force at once

The rules took effect the day they were issued. There was no grace period.

3. Who is covered

These Directions apply to every all India financial institution.

4. Initial margin is excluded

Initial margin does not include what is put into a clearing house loss pool.

1. Board capital plan

The capital plan must name the planning process and who is responsible for it.

2. Board disclosure policy

The Board must approve a policy on what the all India financial institution discloses and how.

3. Board reviews the process yearly

The Board must assess and record once a year whether the capital process works.

4. Shortfall filled by the parent

A shortfall of capital in an unconsolidated subsidiary must be made good.

5. Insurance arms left out

Insurance and non-financial subsidiaries are not consolidated for capital.

6. Those holdings come off

Capital put into insurance and non-financial subsidiaries is deducted from group capital.

1. Nine per cent floor

The Pillar 1 capital ratio must stay at nine per cent at all times.

2. Total capital floor

Total capital must stay at 9 per cent of risk weighted assets.

3. Core capital floor

Common equity Tier 1 capital must stay at 5.5 per cent of risk weighted assets.

4. Tier 1 at seven

Tier 1 capital must be at least seven per cent of risk weighted assets.

5. Tier 1 floor

Tier 1 capital must stay at 7 per cent of those assets.

6. No loans on own shares

Lending against its own shares would be funding its own capital, so it is barred.

7. Do not hint at redemption

The issuer must not create any expectation of an early redemption.

8. Short payment not made up

If less than the set rate is paid, the shortfall is never made good.

9. No rating linked coupon

The coupon cannot be reset according to the issuer's own credit standing.

10. Twenty-one days to report

Such an appropriation must be reported to the Reserve Bank within twenty-one days.

11. No lending against own paper

No advance may be given against the security of the issuer's own debt instruments.

12. General provisions capped

These items count as Tier 2 only up to 1.25 per cent of credit risk assets.

13. Tier 2 debt minimum

A Tier 2 debt instrument must run for at least five years.

14. No put option

These instruments cannot carry a put option.

15. Other regulators still apply

Conditions set by the market regulator or any other authority must also be met.

16. Investor must sign off

The loss absorbency features must be explained and the investor must sign off.

17. Other regulators apply too

Conditions set by the market regulator or any other authority must also be met.

18. Write-down makes core capital

A conversion or write-down must itself generate common equity Tier 1 capital.

19. Records for the auditors

Records must let internal, statutory and inspecting auditors verify the transactions.

20. Bring the holding down

An investor left above the statutory ceiling must reduce it within the set time.

21. Look through an index

A holding in an index must be looked through to the capital underneath it.

22. Three pillars hold it up

The whole capital framework rests on three pillars.

23. Revaluation reserve rule

A revaluation reserve rejected from core capital is rejected from Tier 2 as well.

24. Dividend from this year only

A dividend on common shares may be paid only out of the current year's profit.

25. Board fixes the amount

The Board decides how much of the instrument may be raised.

26. Preference shares are perpetual

These preference shares carry no maturity date and no reward for early repayment.

27. Fixed or floating dividend

The dividend may be at a fixed rate or one tied to a market benchmark.

28. Skipped payment, no default

Cancelling a discretionary payment is not an event of default.

29. Approval for a floating rate

Offering a floating reference rate needs the Reserve Bank's prior approval.

30. Outside the borrowing limit

Foreign investment in these instruments sits outside the external borrowing limit.

31. Shown under capital

These preference shares are shown under the capital schedule of the balance sheet.

32. Board decides the amount

The Board decides how much of each capital instrument the all India financial institution raises.

33. Fixed or floating rate

Interest may be at a fixed rate or a rate tied to a market benchmark.

34. Losses netted off first

Accumulated losses and deferred revenue expenditure are netted off first.

35. Coupon needs the ratio met

A coupon paid out of reserves requires the core capital ratio to be met.

36. Written down near maturity

These debt instruments are written down as they approach maturity.

37. Foreign holding is capped

Foreign institutional investment in these instruments has a separate ceiling.

38. Shown as borrowings

These instruments appear in the balance sheet as borrowings.

39. RBI fixes the write-down

How much non-equity capital is converted or written off is decided by the Reserve Bank.

40. Non-bank minority left out

Minority interest in a non-bank subsidiary is left out of the group's capital.

41. Non-bank minority interest

Minority interest in subsidiaries that are not banks does not count as group capital.

42. Goodwill deducted

Goodwill paid on buying a stake in an associate is deducted from core capital.

43. Losses are removed

Losses of this period and earlier periods are deducted from core capital.

44. Loss-linked tax assets

Deferred tax assets linked to past losses are deducted in full from core capital.

45. Excess deferred tax stays out

A deferred tax liability above the asset is neither adjusted nor added back.

46. Cross holdings deducted

Capital that two institutions hold in each other is deducted in full.

47. Poor ratings weigh more

Where ratings differ, the one carrying the higher risk weight is applied.

48. Bank-backed returns not capital

Capital whose investor returns the all India financial institution has guaranteed does not count as capital.

49. Fund units are deducted

A holding in subordinated units of an alternative investment fund is deducted in full.

BankPulse example. A lender puts ₹10 crore into such a fund, as subordinated units. The whole ₹10 crore comes off capital funds. It is taken proportionately from Tier 1 and Tier 2 capital.

50. Guarantee money is deducted

A default loss guarantee given by the lender is taken out of its capital.

BankPulse example. A lender gives a default loss guarantee and ₹20 crore of it is still outstanding. The whole ₹20 crore comes off its capital. Nothing is left in on the ground that no loss has happened yet.

1. State guarantee at twenty

A claim guaranteed by a State Government carries a 20 per cent risk weight.

2. Charge has a ceiling

The capital charge cannot exceed what the exposure would cost if it had no guarantee.

3. Core investment companies

An exposure to a core investment company carries a 100 per cent risk weight.

4. Rating lost above ₹100 crore

A claim above ₹100 crore that loses its rating also carries 150 per cent.

5. Retail portfolio at 75

A claim inside the regulatory retail portfolio carries a 75 per cent risk weight.

6. Small business defined

A small business here is one with average yearly turnover below ₹50 crore.

7. Retail cap per borrower

Total retail exposure to one borrower cannot cross ₹7.5 crore.

8. Residential projects at 75

A commercial property loan for residential housing carries a 75 per cent weight.

9. Other property at 100

Other commercial property lending carries a 100 per cent risk weight.

10. Half provided, half weight

If provisions reach 50 per cent or more, the weight falls to 50 per cent.

11. Capital market exposure

A capital market exposure carries a 125 per cent risk weight, or higher if rated worse.

12. Finance company equity

Equity in a non-banking finance company that is not deducted carries 250 per cent.

13. Everything else at 100

All other assets carry a uniform risk weight of 100 per cent.

14. Enhancement charge capped

The capital on a credit enhancement cannot exceed the enhancement itself.

15. Qualifying clearing house

Collateral counted as a trade exposure with a qualifying clearing house carries 2 per cent.

16. Weak clearing house

A default fund contribution to a non-qualifying clearing house carries 1,250 per cent.

17. Walkaway deals not netted

A contract with a walkaway clause cannot be netted when capital is worked out.

18. Originator cannot buy back

The originator cannot repurchase transferred exposures except through a clean up call.

19. Clean up call is optional

A clean up call can never be made compulsory on the originator.

20. No hidden support

A clean up call cannot be built so as to give hidden credit support.

21. Clean-up call limit

A clean-up call cannot become exercisable above 10 per cent of the original pool.

BankPulse example. Suppose the pool started at ₹500 crore. A clean-up call may become exercisable once the pool falls to 10 per cent of that. That is ₹50 crore. It may not be set to trigger while ₹80 crore is still outstanding.

22. Full capital below grade

If the bond's rating falls below investment grade, full capital must be held.

23. State securities at zero

An investment in State Government securities carries a zero risk weight.

24. RBI treated as government

Claims on RBI and on the deposit insurance body carry the Central Government weight.

25. Third house is commercial

A loan for a person's third home onwards is treated as commercial property.

26. Other housing claims

Any other claim on housing takes the higher weight of the borrower or the purpose.

27. Some swaps are exempt

No future exposure is worked out on single currency floating to floating swaps.

28. Repurchase stays retained

A securitisation exposure bought back is treated as retained, not fresh.

29. Yearly rating review

RBI reviews the mapping of rating grades to risk weights every year.

1. Assessment at every level

That assessment is prepared for each entity in the group and for the group itself.

1. Quarterly leverage disclosure

The leverage ratio and the figures behind it are disclosed at each quarter end.

1. Old rules stay repealed

Rules repealed before this document was issued remain repealed.

2. Old actions preserved

Anything already done under the old rules stays governed by those old rules.

3. Approvals carried over

Approvals given under the cancelled rules are now treated as given under these rules.

4. Other laws still apply

These Directions add to other laws. They do not replace any of them.

BankPulse example. A bank follows these Directions and thinks the matter is closed. It is not. Any other laws, rules, regulations or directions in force still apply on top. Where another one asks for more, the bank does the more.