Reserve Bank of India (Regional Rural Banks - Prudential Norms on Capital Adequacy) Directions, 2025 (Updated as on June 16, 2026)

1. Capital rules for RRBs

This document sets how much capital the lender must hold.

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 regional rural bank.

1. Nine per cent floor

A regional rural bank must hold nine per cent capital at all times.

2. Capital has two tiers

Capital for this purpose is Tier 1 and Tier 2 only. Nothing else counts.

3. Revaluation reserve rule

A revaluation reserve rejected from Tier 1 is rejected from Tier 2 as well.

4. Board fixes the amount

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

5. Bank issues it directly

The instrument must be issued by the bank itself, not by a special vehicle.

6. Perpetual debt within seven

Inside the seven per cent Tier 1 floor, perpetual debt is capped at 1.5 per cent.

7. No maturity date

Perpetual debt has no maturity date and no incentive to redeem it early.

8. Fixed or floating rate

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

9. No put or step up

These instruments cannot carry a put option or a step up option.

10. What a net loss means

A net loss means either loss brought forward or loss in the current year.

11. Where the holder ranks

These holders rank above equity but below every creditor and depositor.

12. No progressive discount

These instruments are not written down as they age.

13. Fully paid and unsecured

The instrument must be fully paid, unsecured and free of restrictive clauses.

14. Other regulators still apply

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

15. Banks cannot hold it

A regional rural bank cannot invest in perpetual debt issued by another bank.

16. Not for small investors

This paper cannot be sold to retail investors, foreign investors or non-residents.

17. Not a lending security

The issuer cannot lend against the security of its own instrument.

18. Shown under borrowings

Perpetual debt is shown in the balance sheet under schedule four, borrowings.

19. 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.

20. 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.

21. General provisions capped

General provisions count as Tier 2 only up to 1.25 per cent of risk weighted assets.

22. Tier 2 stays smaller

Tier 2 capital may never be larger than Tier 1 capital.

1. Risk assets are added

The total of risk weighted assets is what the capital ratio is measured against.

2. Bad state paper weighs more

A state guaranteed security that has gone bad carries a 102.5 per cent weight.

3. Guarantee schemes weigh nil

Exposure guaranteed under the named credit guarantee schemes carries no weight.

4. Excess is weighted normally

Anything above the guaranteed portion carries its ordinary risk weight.

5. Bills follow the borrower

Bills bought or discounted count as exposure on the borrower, not the paper.

6. Securitisation costs full capital

Capital on a securitisation holding equals the actual exposure, and is watched.

7. Accepted bills are bank claims

A bill accepted by another bank is treated as a claim on that bank.

8. Prove the risk moved

The bank must satisfy itself that the risk really sits with the other bank.

9. Walkaway deals not netted

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

10. Guarantees must be firm

A guarantee must be direct, explicit, irrevocable and unconditional to count.

11. Charge has a ceiling

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

1. Annual return to NABARD

An annual return on capital funds and risk assets goes to NABARD.

2. Two officers sign it

Two officers authorised to sign statutory returns must sign that return.

3. File when accounts close

The statement goes in as soon as the annual accounts are finalised.

1. Old rules stay repealed

Rules repealed before this document was issued remain repealed.

2. Past acts still stand

Anything done under the old rules is still judged by the old rules.

3. Added to other law

These rules sit on top of every other law and rule already in force.