RBI Revises Capital Adequacy Norms for Banks

On 8th May 2026, the Reserve Bank of India (RBI) revised guidelines governing the inclusion of quarterly profits in banks’ Common Equity Tier 1 (CET1) capital calculations by removing conditions linked to non-performing asset (NPA) provisioning.

Key Points

Removal of NPA Provisioning Condition: The revised framework eliminates the earlier requirement related to incremental provisioning for non-performing assets (NPAs).
Previous Rule: Earlier, banks could include quarterly profits in CRAR calculations only if NPA provisions during any quarter did not deviate by more than 25% from the annual average provisioning level.
Simplified Capital Calculation: The removal of this qualifying condition is expected to simplify the process for banks in determining capital adequacy.
Importance of CRAR: Capital to Risk Weighted Assets Ratio (CRAR) is a key measure of a bank’s financial stability and ability to absorb losses.
Role of CET1 Capital: CET1 represents the highest-quality core capital maintained by banks to ensure financial resilience.
Coverage of Banks: Separate amendment directions have been issued for commercial banks, small finance banks, and payments banks.
Operational Benefit: The revised norms are expected to streamline quarterly capital adequacy assessments and reduce procedural complexity.
Regulatory Objective: The move aims to improve efficiency in banking regulation while maintaining prudential oversight of the financial sector.