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• Reserve Bank of India has relaxed norms governing the inclusion of quarterly profits in banks’ capital adequacy calculations by removing an additional qualifying condition linked to non-performing assets.
• The revised framework allows banks to include current financial year profits in Common Equity Tier 1 (CET1) capital calculations on a quarterly basis, subject to prescribed conditions and periodic financial review requirements.
• The amended directions apply to commercial banks, small finance banks and payments banks across the Indian banking sector.
• The move is expected to provide lenders with greater flexibility in capital management and capital-to-risk weighted assets ratio calculations. The central bank had earlier issued draft amendments for stakeholder feedback before finalising the revised prudential norms earlier this week.
Reserve Bank of India has eased prudential norms relating to the inclusion of quarterly profits in banks’ capital adequacy calculations by removing an additional qualifying condition associated with non-performing assets (NPAs). Advertisement
Through the Reserve Bank of India (Commercial Banks - Prudential Norms on Capital Adequacy) Fifth Amendment Directions, 2026 issued earlier this week, the central bank amended provisions governing the treatment of quarterly profits under Common Equity Tier 1 (CET1) capital calculations.
Under the revised framework, banks will be permitted to include profits earned during the current financial year in the calculation of their capital-to-risk weighted assets ratio (CRAR) on a quarterly basis, subject to prescribed conditions and formula-based calculations.
Earlier, banks were allowed to include quarterly profits in capital adequacy calculations only after satisfying an additional qualifying requirement linked to asset quality and NPA-related considerations. The latest amendment removes that condition while retaining requirements related to financial statement review and oversight.
According to the revised directions, banks will continue to require either an audit or limited review of financial statements on a quarterly basis before recognising profits for capital adequacy purposes. The amended norms have also been extended to small finance banks and payments banks.
The central bank had released draft amendment proposals in April and invited comments from stakeholders before issuing the final framework. According to the RBI, several stakeholders had suggested retaining the earlier annual CET1 accounting approach combined with quarterly reviews, arguing that it represented a more prudent framework for capital recognition. However, the regulator chose not to incorporate that recommendation into the final amendments.
The relaxation is expected to provide banks with greater operational flexibility in capital planning and improve the ability of lenders to strengthen regulatory capital ratios during the course of a financial year rather than waiting for annual financial closure.
Capital adequacy remains a key regulatory metric for banks, particularly amid evolving credit growth trends, provisioning requirements and regulatory oversight linked to asset quality. CET1 capital forms the core component of a bank’s capital structure and is closely monitored by regulators and investors as an indicator of financial resilience and loss-absorption capacity.
The move comes at a time when Indian banks continue to report improving balance sheets, moderated bad loan levels and stronger profitability across several lending segments. The revised norms are also expected to support capital management for lenders navigating loan growth, infrastructure financing and evolving regulatory capital requirements.
Source - PTI
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