meta_id 3106019

On April 27, 2026, the Reserve Bank of India (RBI) issued the Reserve Bank of India (Commercial Banks - Prudential Norms on Capital Adequacy) Third Amendment Directions, 2026, amending the existing capital adequacy framework for commercial banks operating in India. The amendments, issued under Section 35A of the Banking Regulation Act, 1949, align the capital adequacy directions with the recently issued Reserve Bank of India (Commercial Banks - Asset Classification, Provisioning and Income Recognition) Directions, 2026. Key modifications include the introduction of Stage 1, Stage 2, and Stage 3 asset classifications into the capital adequacy framework, consistent with the new asset classification standards. The amendments revise provisions relating to Tier 2 capital, specifying that general provisions on standard assets (Stage 1 or Stage 2 assets) and excess provisions arising from non-performing asset (NPA) sales may qualify for inclusion in Tier 2 capital, subject to a maximum of 1.25 percent of total credit risk-weighted assets under the standardised approach. Banks may alternatively net off floating provisions from gross NPAs to arrive at net NPA. The directions clarify that specific provisions on NPAs and Stage 3 exposures, whether at individual account or portfolio level, shall be excluded from Tier 2 capital calculations. Additionally, the amendments delete Paragraph 130(2) and the note to Paragraph 223 from the existing directions. The amendments come into force on April 1, 2027, providing commercial banks with a transition period to align their capital adequacy frameworks with the new asset classification and provisioning standards. Banks should review their capital management policies and systems to ensure compliance with the revised requirements by the effective date.