Executive Summary
On March 10, 2026, the Reserve Bank of India (RBI) issued seven Amendment Directions modifying the capital computation and concentration norms across various regulated entities. The primary objective is to clarify the components of Owned Fund / Tier 1 Capital—specifically allowing the inclusion of quarterly profits under strict audit conditions—and to mandate the use of the latest available financial statements for complying with credit and investment concentration norms.
1. Non-Banking Financial Companies (Prudential Norms on Capital Adequacy)
Applicable Entity: All Non-Banking Financial Companies (NBFCs)
Specific Changes Required:
- Inclusion of Quarterly Profits: Free reserves can now include quarterly profits for Owned Fund computation.
- Conditions: Financial statements must undergo a limited review or audit quarterly.
- Calculation Formula: Eligible Profit (EPt) = NPt – 0.25 * D * t
(Where NP = Net Profit up to quarter ‘t’, and D = average dividend paid in the last 3 years). - Losses: Current year losses must be fully deducted from the Owned Fund.
Management Action Plan:
- Mandate statutory auditors to conduct quarterly limited reviews immediately.
- Update the internal CRAR (Capital to Risk Assets Ratio) calculation templates to factor in dividend-adjusted quarterly profits.
- Ensure the finance team provisions for automatic deduction of any interim losses during the financial year.
2. Non-Banking Financial Companies (Concentration Risk Management)
Applicable Entity: All Non-Banking Financial Companies (NBFCs)
Specific Changes Required:
- Latest Financials for Concentration: Tier 1 Capital for calculating credit/investment concentration limits must now be based on the latest available financial statements (audited or limited review), replacing the previous standard of March 31 of the previous year.
- Auditor Certificate for Capital Infusion: Additions to capital funds can only be reckoned for concentration norms after obtaining an external auditor’s certificate and submitting it to the RBI Department of Supervision.
Management Action Plan:
- Reconfigure loan origination and investment management systems to dynamically link exposure limits to the latest quarterly Tier 1 capital rather than the previous year-end figures.
- Establish an SOP (Standard Operating Procedure) to immediately procure auditor certificates upon any new capital infusion before adjusting internal lending limits.
3. Housing Finance Companies (HFCs)
Applicable Entity: All Housing Finance Companies (HFCs)
Specific Changes Required:
- Quarterly Profits in Owned Fund: Allows inclusion of dividend-adjusted quarterly profits (subject to limited review/audit) in Owned Fund calculations.
- ROU Asset Exemption: HFCs are not required to deduct Right-of-Use (ROU) assets created under Ind AS 116 from the Owned Fund, provided the underlying leased asset is tangible.
Management Action Plan:
- Revise regulatory reporting templates to retain tangible ROU assets within the Owned Fund computation.
- Coordinate with statutory auditors for quarterly limited reviews to capitalize on interim profits for capital adequacy enhancement.
4. Core Investment Companies (CICs)
Applicable Entity: All Core Investment Companies (CICs)
Specific Changes Required:
- Quarterly Profits Integration: CICs can include quarterly profits in “Owned Funds” after applying the standard dividend-reduction formula and subjecting financials to quarterly audit/review.
- Lease Asset Treatment: Tangible Right-of-Use (ROU) assets (Ind AS 116) are exempt from being deducted from Owned Funds.
Management Action Plan:
- Update the Adjusted Net Worth (ANW) and outside liabilities tracking mechanisms to reflect the revised Owned Fund definition.
- Conduct a portfolio review of all lease agreements to properly classify tangible ROU assets for capital retention.
5. Mortgage Guarantee Companies (MGCs)
Applicable Entity: All Mortgage Guarantee Companies (MGCs)
Specific Changes Required:
- Owned Fund Components: Includes quarterly profits (subject to limited review and dividend adjustment) and exempts tangible ROU assets from deduction.
- Concentration Norms Base: Tier 1 Capital for compliance with credit/investment concentration norms must now be determined based on the latest available financial statements rather than historical year-end data.
Management Action Plan:
- Integrate the quarterly audit process strictly into the financial calendar.
- Update the risk management framework so that guarantee exposure limits automatically calibrate to the newly approved quarterly Tier 1 capital figures.
6. Asset Reconstruction Companies (ARCs)
Applicable Entity: All Asset Reconstruction Companies (ARCs)
Specific Changes Required:
- Owned Fund Clarification: Free reserves (excluding revaluation reserves) can now include quarterly profits.
- Stringent Deduction: Inclusion is strictly subject to quarterly limited reviews, reduction by the 3-year average dividend proportion, and full deduction of any current year losses.
Management Action Plan:
- Update Net Owned Fund (NOF) calculations utilized for regulatory compliance and capacity planning for acquiring new financial assets.
- Align dividend distribution policies with the new Eligible Profit (EP) formula to ensure NOF is not inadvertently depleted.
7. Standalone Primary Dealers (SPDs)
Applicable Entity: All Standalone Primary Dealers (SPDs)
Specific Changes Required:
- Tier 1 Capital Definition: Explicitly includes quarterly profits subject to the standard conditions (limited review, dividend adjustment).
- Exposure Norms: Applicable Tier 1 Capital for exposure limits must be derived from the SPD’s latest available financial statements (audited or subject to limited review).
- Deductions: Requires clear deduction of current-year losses, intangible assets, deferred tax assets, and investments in subsidiaries from Tier 1 Capital.
Management Action Plan:
- Overhaul trading limit systems. Dealer exposure limits must be dynamically updated every quarter based on the freshly reviewed Tier 1 capital.
- Ensure the accounting team maps deferred tax assets and intangible assets precisely for immediate deduction during quarterly Tier 1 capital computations.