--- title: "RBI Revises Capital Adequacy Norms for Small Finance Banks: Quarterly Profits Eligible for CET1 Capital Recognition" date: 2026-06-23 author: "King Stubb & Kasiva" url: https://ksandk.com/newsletter/small-finance-banks-cet1-capital/ --- # RBI Revises Capital Adequacy Norms for Small Finance Banks: Quarterly Profits Eligible for CET1 Capital Recognition Posted On - 23 June, 2026 • By - King Stubb & Kasiva The Reserve Bank of India (“RBI”) has issued8 the Reserve Bank of India (Small Finance Banks – Prudential Norms on Capital Adequacy) (Fourth Amendment) Directions, 2026, amending Paragraph 11(x) of the Master Direction – Prudential Norms on Capital Adequacy for Small Finance Banks, 2025. The amendment revises the framework governing the inclusion of interim profits in Common Equity Tier 1 (“CET1”) capital for the purpose of computing the Capital to Risk-Weighted Assets Ratio (“CRAR”). Under the revised framework, Small Finance Banks (“SFBs”) are permitted to recognize profits earned during the financial year as part of CET1 capital on a quarterly basis, subject to specified conditions. Such recognition is permitted only where the quarterly financial statements have been audited or subjected to a limited review and the eligible profits are computed in accordance with the methodology prescribed by RBI, including adjustments based on historical dividend payout rates. Further, any cumulative net loss must be fully deducted from CET1 capital. The amendment seeks to strengthen the prudential capital framework applicable to SFBs by ensuring that only appropriately adjusted and independently reviewed interim profits are considered for regulatory capital purposes. By prescribing a standardized methodology for the recognition of quarterly profits, RBI aims to improve the accuracy, consistency, and reliability of CRAR calculations while preventing any overstatement of CET1 capital. The revised framework also aligns the capital adequacy requirements applicable to SFBs with broader prudential banking principles that emphasize transparency, financial resilience, and the quality of regulatory capital. As a result, SFBs may be required to enhance their financial monitoring, capital planning, and reporting processes to ensure compliance with the revised requirements. ## **Conclusion** The amendment introduces a more robust and standardized framework for the recognition of quarterly profits in CET1 capital by Small Finance Banks. By permitting the inclusion of reviewed interim profits while requiring appropriate adjustments for dividend payouts and losses, RBI has reinforced the prudential integrity of capital adequacy calculations and strengthened the overall resilience of the Small Finance Banking sector. *Last Updated on 24 June, 2026* --- ## Office Locations - [New Delhi](https://ksandk.com/locations/top-corporate-law-firm-in-delhi/) (HQ): +91-11-41318190 | info@ksandk.com - [Mumbai](https://ksandk.com/locations/top-corporate-law-firm-in-mumbai/): 3 offices (Nariman Point, Lower Parel, Andheri) | mumbai@ksandk.com - [Bangalore](https://ksandk.com/locations/top-corporate-law-firm-in-bangalore/): bangalore@ksandk.com - [Chennai](https://ksandk.com/locations/chennai/): chennai@ksandk.com - [Hyderabad](https://ksandk.com/locations/hyderabad/): hyderabad@ksandk.com - [Pune](https://ksandk.com/locations/pune/): pune@ksandk.com - [Kochi](https://ksandk.com/locations/kochi/): kochi@ksandk.com ## Contact - [Contact Page](https://ksandk.com/contact-us/) - General: info@ksandk.com | +91-11-41318190 - WhatsApp: +91-7428567444 - [Privacy Statement](https://ksandk.com/privacy-statement/) - [Terms of Use](https://ksandk.com/terms-of-use/)