The RBI has implemented new rules allowing banks to include quarterly profits in capital strength calculations. This change removes an earlier complex condition tied to bad loan provisions, simplifying the process for commercial and other banks.
The Reserve Bank of India on Friday implemented rules related to how banks can include quarterly profits while calculating their capital strength, removing an earlier condition linked to bad loan provisions.
In a press release issued on Friday, the RBI said it had earlier released draft amendment directions on April 8, 2026, on the "Review of guidelines on inclusion of quarterly profits to Common Equity Tier 1 (CET1) capital for computation of Capital to Risk Weighted Assets Ratio (CRAR) for Banks" and had sought feedback from stakeholders. CRAR is a key measure used to assess whether a bank has enough financial strength to absorb potential losses, while CET1 capital refers to the core capital held by banks.
Previous Framework Explained
Explaining the earlier framework, the RBI said, "Currently, Commercial Banks (excluding Local Area Banks and Regional Rural Banks) may reckon the profits in current financial year for CRAR calculation on a quarterly basis provided the incremental provisions made for non-performing assets (NPAs) at the end of any of the four quarters of the previous financial year have not deviated more than 25 per cent from the average of the four quarters." In simple terms, banks were earlier allowed to include quarterly profits in their capital calculations only if the money set aside for bad loans remained broadly stable and did not fluctuate sharply.
Revised Framework and Feedback
The RBI said the revised framework aims to simplify this process. "The Draft Directions were aimed to remove the qualifying condition of incremental provisions for NPAs," the central bank said.
The RBI further said that feedback received from stakeholders on the draft framework had been reviewed before finalising the amendment directions. "Feedback received on the drafts has been examined and considered while finalising the Amendment Directions," the RBI stated.
Implementation and Impact
The central bank said it has now issued three separate amendment directions applicable to commercial banks, small finance banks and payments banks.
The move is expected to make quarterly capital calculations easier and more streamlined for banks by replacing the earlier NPA-linked condition with a simpler framework. (ANI)
(Except for the headline, this story has not been edited by Asianet Newsable English staff and is published from a syndicated feed.)