RBI Simplifies Bank Capital Rules by Removing Quarterly NPA Provision Limits
Why it matters
On May 8, 2026, the RBI issued three final Amendment Directions, concluding a review process that began on April 8. Previously, banks were only permitted to count current-year quarterly profits toward their Capital to Risk-weighted Assets Ratio (CRAR) if incremental provisions for non-performing assets (NPAs) did not deviate by more than 25% from the previous four-quarter average. The new regulations officially remove this condition.
This change applies to Commercial Banks, Small Finance Banks, and Payments Banks. By eliminating the NPA provision qualifier, the RBI provides these institutions with a cleaner, more streamlined mechanism to account for CET1 capital. The move is expected to simplify quarterly capital adequacy reporting across these sectors.
| Bank Category | Specific Amendment Direction |
|---|---|
| Commercial Banks | Fifth Amendment Directions, 2026 |
| Small Finance Banks | Fourth Amendment Directions, 2026 |
| Payments Banks | Second Amendment Directions, 2026 |
Glossary
CET1: Common Equity Tier 1, the core measure of a bank's financial strength.
CRAR: Capital to Risk-weighted Assets Ratio, which measures a bank's available capital relative to its risk profile.
NaukriSync Exam Angle
Focus on the 2026 RBI regulatory easing regarding CET1. Exams may test the removal of the 25% NPA provision deviation threshold. Ensure you distinguish between Commercial, Small Finance, and Payments Banks, as the amendment covers all three categories.