RBI Allows Rural Banks to Issue Perpetual Debt to Augment Capital
RBI published a circular announcing the decision to allow regional rural banks to issue Perpetual Debt Instruments eligible for inclusion as tier 1 capital, with a view to providing these banks with additional options for augmenting regulatory capital funds. This will help the regional rural banks to maintain the minimum prescribed Capital to Risk-weighted Assets Ratio (CRAR), besides meeting the increasing business requirements. The terms and conditions for issuance of Perpetual Debt Instruments have been provided in the Annex to the circular.
Regional rural banks are required to maintain a minimum CRAR of 9% on an ongoing basis. The capital funds for capital adequacy purpose shall consist of both tier 1 and tier 2 capital. The circular details limits on tier 1 capital as follows:
- The total tier 1 capital should not be less than 7% of risk-weighted assets after the regulatory adjustment/deduction as per paragraphs 3.1.4 and 3.1.5 of the circular.
- Of the minimum tier 1 capital of 7%, the Perpetual Debt Instruments will be limited to 1.5% of the total risk-weighted assets.
- Any additional amount raised through Perpetual Debt Instruments over and above 1.5% of the risk-weighted assets will also be reckoned as tier 1 capital, provided the bank complies with the minimum tier 1 capital of 7% of the risk-weighted assets before reckoning such additional amounts.
The circular provides information on deductions from Tier 1 Capital and Treatment of deferred tax assets. Additionally, the circular highlights that regional rule banks are not permitted to issue Perpetual Debt Instruments to retail investors/FPIs/NRIs, and invest in the Perpetual Debt Instruments of other banks, including the regional rural banks.
Keywords: Asia Pacific, India, Banking, Regulatory Capital, Tier 1 Capital, CRAR, Perpetual Debt Instruments, Capital Adequacy, Regional Rural Bank, RWA, RBI
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Patrycja Oleksza
Applies proficiency and knowledge to regulatory capital and reporting analysis and coordinates business and product strategies in the banking technology area
Previous Article
FASB Clarifies Implementation Guidance for Leases StandardNext Article
CBO Releases Financial Stability Report for 2019Related Articles
BOE Sets Out Its Thinking on Regulatory Capital and Climate Risks
The Bank of England (BOE) published a working paper that aims to understand the climate-related disclosures of UK financial institutions.
OSFI Finalizes on Climate Risk Guideline, Issues Other Updates
The Office of the Superintendent of Financial Institutions (OSFI) is seeking comments, until May 31, 2023, on the draft guideline on culture and behavior risk, with final guideline expected by the end of 2023.
BIS Paper Examines Impact of Greenhouse Gas Emissions on Lending
BIS issued a paper that investigates the effect of the greenhouse gas, or GHG, emissions of firms on bank loans using bank–firm matched data of Japanese listed firms from 2006 to 2018.
HMT Mulls Alignment of Ring-Fencing and Resolution Regimes for Banks
The HM Treasury (HMT) is seeking evidence, until May 07, 2023, on practicalities of aligning the ring-fencing and the banking resolution regimes for banks.
BCBS Report Examines Impact of Basel III Framework for Banks
The Basel Committee on Banking Supervision (BCBS) published results of the Basel III monitoring exercise based on the June 30, 2022 data.
PRA Consults on Prudential Rules for "Simpler-Regime" Firms
Among the recent regulatory updates from UK authorities, a key development is the first-phase consultation, from the Prudential Regulation Authority (PRA), on simplifications to the prudential framework that would apply to the simpler-regime firms.
DNB Publishes Multiple Reporting Updates for Banks
DNB, the central bank of Netherlands, updated the list of additional reporting requests and published additional data quality checks and XBRL-Formula linkbase documents for the first quarter of 2023.
NBB Sets Out Climate Risk Expectations, Issues Reporting Updates
The National Bank of Belgium (NBB) published a communication on climate-related and environmental risks, issued an update on XBRL reporting
EBA Updates Address Securitization Standards and DGS Guidelines
The European Banking Authority (EBA) published the final draft of the regulatory technical standards that set out conditions for assessment of homogeneity of the underlying exposures in simple, transparent, and standardized (STS) securitizations.
FSB Publishes Letter to G20, Sets Out Work Priorities for 2023
The Financial Stability Board (FSB) published a letter intended for the G20 Finance Ministers and Central Bank Governors, highlighting the work that FSB will take forward under the Indian G20 Presidency in 2023
