Reserve Bank of India (RBI) has issued fresh amendment directions allowing commercial banks to include quarterly profits in Common Equity Tier 1 (CET1) capital calculations with simplified conditions, a move aimed at streamlining capital adequacy norms for lenders.
The revised framework comes after the central bank reviewed stakeholder feedback on draft amendment directions released on April 8, 2026.
NPA-linked condition removed
Under the earlier framework, commercial banks could include current year profits for calculating Capital to Risk Weighted Assets Ratio (CRAR) on a quarterly basis only if incremental provisions for non-performing assets (NPAs) during the previous financial year did not deviate by more than 25% from the quarterly average.
With the latest amendment, the RBI has removed this qualifying condition linked to NPA provisioning, giving banks greater flexibility in recognising quarterly profits for regulatory capital calculations.
Revised CET1 calculation framework
The amendment has been incorporated under the Reserve Bank of India (Commercial Banks – Prudential Norms on Capital Adequacy) Fifth Amendment Directions, 2026, which came into effect immediately.
As per the revised norms, banks can now reckon quarterly profits for CET1 capital computation provided:
- Quarterly financial statements are audited or subjected to limited review
- Eligible profits are calculated using a prescribed formula after adjusting for average dividend payouts over the previous three financial years
The RBI said cumulative net losses up to any quarter-end must continue to be fully deducted while calculating CET1 capital for the relevant quarter.
Move expected to improve capital flexibility
Industry experts believe the revised norms could help banks improve capital planning and provide more operational flexibility in maintaining regulatory capital ratios.
The simplification also aligns with RBI’s broader efforts to strengthen prudential regulation while reducing procedural complexities for lenders. Commercial banks are expected to benefit from faster recognition of profits in capital buffers, particularly during periods of strong earnings growth.
Stakeholder feedback incorporated
The central bank noted that feedback received from stakeholders on the draft amendment directions had been examined before finalising the revised framework.
The move is expected to support smoother capital management across the banking sector while ensuring adequate safeguards through mandatory audit and review requirements.
Key highlights
- RBI removes NPA provisioning-linked restriction for quarterly profit inclusion in CET1 capital
- Commercial banks can now recognise quarterly profits with simplified conditions
- Quarterly statements must be audited or reviewed
- Revised directions effective immediately
- Move aimed at improving capital adequacy flexibility for banks