The Reserve Bank of India has eased norms for banks to include current year profits in their capital adequacy calculations on a quarterly basis by removing an additional qualifying condition. According to The Economic Times, the RBI issued the Reserve Bank of India (Commercial Banks - Prudential Norms on Capital Adequacy) Fifth Amendment Directions, 2026 to amend the provision relating to inclusion of quarterly profits in Common Equity Tier 1 (CET1) capital. The circular allows banks to reckon profits in the current financial year for capital to risk weighted assets ratio (CRAR) calculation on a quarterly basis, subject to certain conditions including a prescribed formula. As per The Hindu BusinessLine, the amendment aims to align capital adequacy computation with current financial performance while retaining prudential safeguards.
The new directions include specific operational requirements for banks implementing quarterly profit inclusion. As reported by The Economic Times, there is a requirement of audit or limited review of financial statements on a quarterly basis. Similar directions have also been issued for small finance banks and payments banks, ensuring uniform implementation across all bank categories. According to The Hindu BusinessLine, the RBI has prescribed a revised formula for determining "eligible profit" that can be included in CET1 capital. The amendment represents a significant change from the previous guidelines that required banks to meet additional qualifying conditions related to non-performing assets (NPAs) before including quarterly profits in their capital calculations.
The regulatory change comes after the RBI received feedback from stakeholders following the earlier draft amendment directions issued in April. According to The Economic Times, stakeholders suggested that retaining yearly CET1 accounting with quarterly reviews offers a more prudent path. However, the RBI did not accept this suggestion, instead proceeding with the current quarterly inclusion framework. As per The Hindu BusinessLine, the amendment is likely to provide banks greater flexibility in recognising interim profits for capital adequacy purposes, while ensuring that dividend expectations and potential losses are adequately factored into regulatory capital calculations. This decision reflects the central bank's assessment of the optimal balance between regulatory prudence and operational flexibility for banks in their capital management practices.
