Master Direction – Reserve Bank of India (Prudential Norms on Capital Adequacy for Regional Rural Banks) Directions, 2025

Introduction

On 25th March 2025, the Reserve Bank of India released its notification stating Master Directions regarding Prudential Norms on Capital Adequacy for Regional Rural Banks, Directions 2025 to consolidate all previous instructions and directives related to credit information reporting by Regulated Entities (“Res”) and aims to establish a standardized framework for reporting and disseminating credit information, ensuring data confidentiality and security, and providing mechanisms for consumers to access their credit information and address grievances.

The Master Directions have covered numerous aspects which are as follows:

1. Applicability: It applies to all Credit Institutions (“CIs”) and Credit Information Companies (“CICs”) as defined within the notification.
2. Membership of CICs: All CIs are mandated to become members of all CICs registered with the RBI. Membership fees are capped as specified by the notification.
3. Fixing Responsibilities: The Credit Institutions as well as the CICs have been made accountable wherein CIs are responsible for the timely and accurate submission of credit information to CICs. Before the due date of 10th April 2025, the Credit Institutions and Credit Information Companies have also been mandated to implement a credit information reporting mechanism.

The directive sets prudential norms to ensure RRBs maintain sufficient capital to cover risks. Under these guidelines, Regional Rural Banks (“RRBs”) must maintain a minimum Capital to Risk Weighted Assets Ratio (“CRAR”) of 9%, with at least 7% in Tier 1 capital. Tier 1 capital includes paid-up share capital, reserves, and perpetual debt instruments (“PDIs”), while Tier 2 capital comprises general provisions and investment fluctuation reserves. The recommendations cover and include regulatory deductions, PDI requirements, and risk-weight computations. RRBs are required by reporting requirements to provide NABARD with yearly capital adequacy returns. Additionally, some capital instruments including call options require prior RBI approval. To guarantee uniformity in capital adequacy frameworks for RRBs, the Master Direction incorporates statutory clarifications and supersedes previous circulars.

The Master Directions have also delved in detail into the Composition of Regulatory Capital, Computation of Risk Weighted Assets, Reporting of Transactions and provisions for repeal and other terms.

Conclusion

The Master Directions have covered guidelines for the amount of capital that banks must set aside in accordance with their risks and the components of those risks. From the perspective of capital adequacy, these guidelines serve to define prudential standards. The rules, guidelines, and instructions on the subject that are periodically released by the Reserve Bank will serve as the basis for granting RRBs permission to conduct transactions involving particular instruments, goods, or activities.

Reference: https://rbidocs.rbi.org.in/rdocs/notification/PDFs/129MD250320251F04FD11DA1D43FF86E869D8602C5077.PDF