Content
Analysis of RBI Circulars for March 2026
RBI Circulars March 2026
Updates for this month.
Implementation of Section 51A of UAPA, 1967: Delisting of 01 Entry
Background
Regulated entities, including commercial banks and NBFCs, must comply with the Unlawful Activities (Prevention) Act (UAPA), 1967. This involves monitoring accounts against the United Nations Security Council (UNSC) sanctions list to prevent terrorist financing. The Ministry of External Affairs (MEA) keeps domestic financial institutions updated on these global list changes.
Key Decision
Following the UNSC press release SC/16306 dated February 27, 2026, the entity 'AL-NUSRAH FRONT FOR THE PEOPLE OF THE LEVANT' (also known as Hay’at Tahrir al-Sham) has been removed from the ISIL (Da'esh) and Al-Qaida Sanctions List. Consequently, the asset freeze, travel ban, and arms embargo no longer apply to this specific entry.
Exam Relevance
- Regulatory Act: The UAPA, 1967 is the primary legislation for counter-terrorist financing in India. Exam Insight: Questions often test the legal framework governing AML/CFT (Anti-Money Laundering/Combating Financing of Terrorism).
- Operational Compliance: Entities must follow Chapter IX of the RBI KYC Directions, 2025. Exam Insight: Remember the specific circular reference (RBI/2025-26/225) and its relation to the UNSC 1267/1989 Committee.
- De-listing Protocol: Requests for de-listing must be forwarded to the Joint Secretary (CTCR), MHA. Exam Insight: Know the correct authority (Ministry of Home Affairs) responsible for internal handling of these requests.
Summary Table
| Feature | Details |
|---|---|
| Circular Date | March 02, 2026 |
| Reference | RBI/2025-26/225 |
| Committee | UNSC 1267/1989/2253 |
| Action | Delisting of 01 entry (Al-Nusrah Front) |
RBI/2025-26/242: Implementation of Section 51A of UAPA, 1967 (Taliban Sanctions)
Background
The RBI, in alignment with the Unlawful Activities (Prevention) (UAPA) Act, 1967, mandates that all regulated financial entities must perform due diligence to ensure they do not maintain accounts for individuals or entities flagged by the United Nations Security Council (UNSC). This circular is part of the periodic updates required to align domestic compliance with international sanctions.
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RBI Circulars March 2026
Updates for this month.
Implementation of Section 51A of UAPA, 1967: Delisting of 01 Entry
Background
Regulated entities, including commercial banks and NBFCs, must comply with the Unlawful Activities (Prevention) Act (UAPA), 1967. This involves monitoring accounts against the United Nations Security Council (UNSC) sanctions list to prevent terrorist financing. The Ministry of External Affairs (MEA) keeps domestic financial institutions updated on these global list changes.
Key Decision
Following the UNSC press release SC/16306 dated February 27, 2026, the entity 'AL-NUSRAH FRONT FOR THE PEOPLE OF THE LEVANT' (also known as Hay’at Tahrir al-Sham) has been removed from the ISIL (Da'esh) and Al-Qaida Sanctions List. Consequently, the asset freeze, travel ban, and arms embargo no longer apply to this specific entry.
Exam Relevance
- Regulatory Act: The UAPA, 1967 is the primary legislation for counter-terrorist financing in India. Exam Insight: Questions often test the legal framework governing AML/CFT (Anti-Money Laundering/Combating Financing of Terrorism).
- Operational Compliance: Entities must follow Chapter IX of the RBI KYC Directions, 2025. Exam Insight: Remember the specific circular reference (RBI/2025-26/225) and its relation to the UNSC 1267/1989 Committee.
- De-listing Protocol: Requests for de-listing must be forwarded to the Joint Secretary (CTCR), MHA. Exam Insight: Know the correct authority (Ministry of Home Affairs) responsible for internal handling of these requests.
Summary Table
| Feature | Details |
|---|---|
| Circular Date | March 02, 2026 |
| Reference | RBI/2025-26/225 |
| Committee | UNSC 1267/1989/2253 |
| Action | Delisting of 01 entry (Al-Nusrah Front) |
RBI/2025-26/242: Implementation of Section 51A of UAPA, 1967 (Taliban Sanctions)
Background
The RBI, in alignment with the Unlawful Activities (Prevention) (UAPA) Act, 1967, mandates that all regulated financial entities must perform due diligence to ensure they do not maintain accounts for individuals or entities flagged by the United Nations Security Council (UNSC). This circular is part of the periodic updates required to align domestic compliance with international sanctions.
Key Decision
The Ministry of External Affairs has notified updates to the 1988 Taliban Sanctions List (pursuant to UNSC Resolution 1988 (2011)). Regulated entities must screen their databases against these updated entries and freeze any assets if matches are found. Procedures for de-listing must follow the February 02, 2021 UAPA order guidelines.
Exam Relevance
- Compliance Framework: The mandate operates under Section 51A of the UAPA Act, 1967. Exam Insight: Questions often test the legal basis for KYC and AML requirements.
- Regulatory Body: The Ministry of External Affairs (MEA) and Ministry of Home Affairs (MHA) provide these inputs to the RBI. Exam Insight: Know the intersection of regulatory circulars and government ministry notifications.
- Global Standard: These sanctions are linked to UNSC Resolution 1988 (2011). Exam Insight: UN resolution numbers related to terrorism financing are common static awareness questions.
Summary Table
| Feature | Details |
|---|---|
| Circular Date | March 11, 2026 |
| Reference Act | UAPA Act, 1967 (Section 51A) |
| Subject | Taliban Sanctions List (1988) |
| Action Required | Asset Freeze / Account Blocking |
Reserve Bank of India (AIFIs - Prudential Norms on Capital Adequacy) Second Amendment Directions, 2026
Background
The RBI has updated the prudential norms for All India Financial Institutions (AIFIs) concerning the treatment of Total Counterparty Credit Risk (CCR). These amendments are designed to provide greater clarity and align domestic regulations with international best practices.
Key Decision
- Consolidation: AIFIs must include CCR exposures of all consolidated entities when computing capital requirements.
- Add-on Factors: The table defining add-on factors for Market-Related Off-Balance Sheet items has been revised, specifically detailing rates for Interest Rate, Exchange Rate, Equity, Precious Metals, and Other Commodities.
- Clearing Member Rules: Updated risk-weighting instructions (2%) for clearing members dealing with Qualified Central Counterparties (QCCPs) and liability clarification for client reimbursements.
Exam Relevance
- Consolidated Capital Requirement: AIFIs are now explicitly required to include CCR exposures of all entities subject to consolidation. Exam Insight: Questions may test the scope of capital adequacy computations for AIFIs.
- Add-on Factor Table: The table now includes specific categories for Precious Metals (Silver, Platinum, Palladium) and Other Commodities (Energy, Agriculture, Base Metals). Exam Insight: High-yield questions often ask for the specific classification of items under these tables.
- Risk Weight for QCCP: A 2% risk weight applies to trade exposures to QCCPs. Exam Insight: The 2% figure is a standard quantitative metric frequently targeted in exams.
Summary Table
| Item | Update | Effective Date |
|---|---|---|
| Scope | Includes consolidated entities | March 10, 2026 |
| QCCP Risk Weight | Fixed at 2% | March 10, 2026 |
| Table 13 | Revised Add-on factors | March 10, 2026 |
Reserve Bank of India (Payments Banks - Prudential Norms on Capital Adequacy) Amendment Directions, 2026
Background
The Reserve Bank of India (RBI) issued these directions to refine the capital adequacy framework specifically for Payments Banks. This amendment focuses on the 'Treatment of total Counterparty Credit Risk' (CCR) to align local regulatory practices with international standards, ensuring better risk management for derivatives and market-related off-balance sheet exposures.
Key Decision
- Table 10 Revision: The Add-on factors for Exchange Rate Contracts and Gold have been updated based on tenure (one year or less, one to five years, and over five years).
- CCR Exposure Rule: All outstanding Counterparty Credit Risk (CCR) exposures must now adhere to the specific Add-on factors defined in Table 10.
- QCCP Risk Weights: A 2% risk weight is mandated for trade exposures to a Qualified Central Counterparty (QCCP). If a bank acts as a clearing member, this 2% risk weight also applies when the bank is obligated to reimburse clients for losses.
- Liability Exemption: Banks can be exempted from maintaining capital for QCCP trade exposures if they provide a written, independent legal opinion confirming they have no reimbursement liability to the client in case of QCCP default.
Exam Relevance
- Add-on Factor Thresholds: The specific percentages for market-related off-balance sheet items (1%, 5%, 7.5%) are high-yield data points. Exam Insight: Questions often test the classification of risk factors by time duration.
- Risk Weight for QCCP: The 2% risk weight applied to clearing member trade exposures is a specific regulatory figure. Exam Insight: Regulators often focus on these standardized percentages for risk-weighted assets.
- Legal Opinion Requirement: The provision for exempting capital maintenance via a 'written, independent, reasoned legal opinion' is a procedural detail frequently tested in descriptive or high-level banking exams.
Summary Table
| Item | Detail |
|---|---|
| Circular Date | March 10, 2026 |
| Applicable Entities | Payments Banks |
| QCCP Risk Weight | 2% |
| Effective Date | Immediate |
Reserve Bank of India (Small Finance Banks - Prudential Norms on Capital Adequacy) Third Amendment Directions, 2026
Background
The Reserve Bank of India has updated the prudential norms regarding the treatment of Counterparty Credit Risk (CCR) for Small Finance Banks (SFBs). This amendment aligns the existing 2025 guidelines with international standards and provides technical clarity for calculating capital charges on off-balance sheet market-related exposures.
Key Decision
The circular modifies Table 14, which lists the 'Add-on factors' for market-related off-balance sheet items (such as interest rate, exchange rate, and commodity contracts). It also clarifies the risk weights applicable to Small Finance Banks acting as clearing members for Qualified Central Counterparties (QCCPs).
Exam Relevance
- Add-on Factors: The amendment introduces specific percentage factors based on maturity (One year or less, 1-5 years, >5 years) for different contracts like Interest Rate, Exchange Rate, and Commodities. Exam Insight: Question setters may provide a specific contract type and maturity to test your ability to recall or apply the correct factor from the updated table.
- Risk Weight for QCCP: A 2% risk weight is now specifically assigned to trade exposures to QCCPs for OTC and exchange-traded derivatives. Exam Insight: Always prioritize percentages and threshold figures as these are high-frequency targets for numeric-based questions.
- Definitions: The circular clarifies that 'Precious Metals' now explicitly includes Silver, Platinum, and Palladium. Exam Insight: Definition-based questions (What is included/excluded) are common in static banking awareness sections.
Summary Table
| Item Type | Add-on Factor (<= 1yr) | Add-on Factor (>5yr) |
|---|---|---|
| Interest Rate Contracts | 0.25% | 1.50% |
| Exchange Rate & Gold | 1.00% | 7.50% |
| Equities | 6.00% | 10.00% |
RBI/2025-26/238: Prudential Norms on Capital Adequacy Amendment
Background
The RBI has updated its regulatory framework to clarify the 'Treatment of total Counterparty Credit Risk' (CCR). These changes align domestic banking capital requirements with international standards, ensuring that banks maintain adequate capital buffers against derivative and off-balance sheet exposures.
Key Decision
The amendment introduces specific 'Add-on factors' for market-related off-balance sheet items and clarifies capital requirements for clearing members of Qualified Central Counterparties (QCCP).
Exam Relevance
- Consolidated Capital: Banks must now include CCR exposures of all consolidated entities when calculating capital requirements. Exam Insight: Focus on the 'Scope of application' criteria as this is a frequent technical question.
- Add-on Factors: Table 16 defines risk percentages (e.g., 0.25% to 15.00%) based on contract type and residual maturity. Exam Insight: Remember that 10.00% is the highest add-on for short-term (<= 1 year) 'Other Commodities'.
- Risk Weight for QCCP: A 2% risk weight applies to trade exposures to QCCPs. Exam Insight: Note the exception clause—no capital charge is needed if a bank holds a legal opinion proving protection from liability.
Summary Table
| Contract Type | Factor (<= 1yr) | Factor (>5yr) |
|---|---|---|
| Interest Rate | 0.25% | 1.50% |
| Exchange/Gold | 1.00% | 7.50% |
| Equities | 6.00% | 10.00% |
| Other Commodities | 10.00% | 15.00% |
Reserve Bank of India (Local Area Banks – Prudential Norms on Declaration of Dividends) Repeal Directions, 2026
Background
The RBI previously issued guidelines for Local Area Banks (LABs) regarding dividend declarations in November 2025. As part of regulatory updates, these existing instructions are being updated and consolidated to ensure the framework remains current for the upcoming financial year.
Key Decision
The RBI has officially repealed the 2025 Directions and replaced them with the 'Reserve Bank of India (Local Area Banks – Prudential Norms on Declaration of Dividends) Directions, 2026'. This change applies to all Local Area Banks effective from the Financial Year (FY) 2026-27.
Summary Table
| Feature | Details |
|---|---|
| Circular Number | RBI/DOR/2025-26/237 |
| Effective Date | FY 2026-27 |
| Repealed Circular | November 28, 2025 |
| Applicable Entity | Local Area Banks (LABs) |
Exam Relevance
- Circular Date: The new notification was issued on March 10, 2026. Exam Insight: Questions often test the exact date of regulatory updates; remember March 10, 2026 for this specific repeal.
- Applicability: These norms specifically govern Local Area Banks. Exam Insight: Always identify the target entity; regulators have distinct rules for Scheduled Commercial Banks vs. Local Area Banks.
- Regulatory Continuity: The circular specifies that pending investigations or legal actions under the old circular remain valid. Exam Insight: This confirms the legal principle of 'savings clause' in regulatory transitions, which is a common concept-based question.
RBI/DOR/2025-2026/236DOR.ACC.REC.No.425/21.02.067/2025-26
Background
The Reserve Bank of India has issued a notification repealing the earlier Directions regarding the 'Prudential Norms on Declaration of Dividends' for Payment Banks, which were issued on November 28, 2025.
Key Decision
The circular officially repeals the 2025 Directions and replaces them with the 'Reserve Bank of India (Payment Banks – Prudential Norms on Declaration of Dividends) Directions, 2026'. These new norms become effective from the Financial Year 2026-27.
Summary Table
| Feature | Details |
|---|---|
| Circular Date | March 10, 2026 |
| Effective Date | Financial Year 2026-27 |
| Status | Repealed (Old) vs Replaced (New) |
Exam Relevance
- Effective Date: The new norms apply starting FY 2026-27. Exam Insight: Questions often test the specific financial year an updated regulatory framework goes into effect.
- Continuity of Legal Action: The circular clarifies that any ongoing investigations or penalties initiated under the old 2025 directions will remain valid. Exam Insight: This is a standard 'legal savings clause' often tested to see if students understand that repeal does not nullify past violations.
- Regulatory Scope: The directions specifically target Payment Banks regarding dividend declaration. Exam Insight: Matching specific circulars to the correct category of banks is a common pattern in regulatory update questions.
Reserve Bank of India (Small Finance Banks – Prudential Norms on Declaration of Dividends) Repeal Directions, 2026
Background
On November 28, 2025, the Reserve Bank of India issued specific directions regarding the declaration of dividends by Small Finance Banks (SFBs). To ensure regulatory consistency and update the framework, the RBI has decided to replace these guidelines with a new set of instructions.
Key Decision
The RBI has officially repealed the November 28, 2025 directions. This repeal is part of a transition to a revised regulatory framework (the 2026 Directions) starting from the Financial Year 2026-27. Existing rights, obligations, and ongoing proceedings under the old directions remain valid and protected.
Exam Relevance
- Policy Transition: The move from the 2025 Directions to the 2026 Directions marks a regulatory update for Small Finance Banks. Exam Insight: Focus on the effective date (FY 2026-27) as setters often test the implementation year of new prudential norms.
- Legal Continuity: The circular specifies that ongoing investigations or liabilities under the old rules are not affected. Exam Insight: Remember this as a standard feature of RBI repeal circulars; legal continuity clauses are common in regulatory updates.
| Feature | Details |
|---|---|
| Circular Date | March 10, 2026 |
| Repealed Rule | November 28, 2025 Directions |
| Effective Date | FY 2026-27 |
| Target Entity | Small Finance Banks |
Reserve Bank of India (Commercial Banks – Prudential Norms on Declaration of Dividend and Remittance of Profit) Repeal Directions, 2026
Background
In late 2025, the Reserve Bank of India issued updated guidelines regarding how commercial banks declare dividends and remit profits to maintain financial stability. To streamline these operational frameworks, the RBI has decided to replace the 2025 version of these norms with a new, unified set of 2026 guidelines.
Key Decision
The RBI has officially repealed the Reserve Bank of India (Commercial Banks – Prudential Norms on Declaration of Dividends and Remittance of Profit) Directions, 2025 (issued on November 28, 2025). These are replaced by the 2026 Directions, which take effect from the Financial Year 2026-27. Actions initiated under the old directions remain valid and enforceable.
Exam Relevance
- Regulatory Continuity: The circular clarifies that repeal does not affect ongoing investigations or penalties initiated under previous norms. Exam Insight: Question setters often test the 'repeal clause' logic—specifically, that existing liabilities/penalties survive the repeal.
- Implementation Date: The new framework applies from FY 2026-27. Exam Insight: Always track the specific start date for new prudential norms.
Summary Table
| Feature | Details |
|---|---|
| Circular Date | March 10, 2026 |
| Action Taken | Repeal of 2025 Directions |
| Replacement | 2026 Directions |
| Effective Date | FY 2026-27 |
Reserve Bank of India (Setting Up of Wholly Owned Subsidiaries by Foreign Banks) Amendment Guidelines, 2026
Background
The Reserve Bank of India (RBI) has issued a clarification on how Wholly Owned Subsidiaries (WOS) of foreign banks incorporated in India should handle profit distribution. This amendment aligns the existing 2025 guidelines with the updated 2026 Prudential Norms on Declaration of Dividends.
Key Decision
The WOS of foreign banks are now explicitly mandated to follow the 'Reserve Bank of India (Commercial Banks – Prudential Norms on Declaration of Dividends and Remittance of Profit) Directions, 2026' for declaring dividends. These dividends can subsequently be repatriated under the provisions of FEMA 1999.
Exam Relevance
- Applicability Date: The guidelines are effective from the Financial Year (FY) 2026-27. Exam Insight: Questions frequently test the commencement date of new regulatory changes.
- Regulatory Alignment: The WOS of foreign banks must comply with the 2026 Prudential Norms on Dividends. Exam Insight: Recognizing the specific circular year (2026) is crucial for recent update questions.
- Legal Framework: Remittance of profit remains governed by FEMA 1999. Exam Insight: This remains the primary statute for all foreign exchange transactions involving banks.
Summary Table
| Feature | Detail |
|---|---|
| Circular Number | RBI/DOR/2025-26/233 |
| Effective Date | FY 2026-27 |
| Primary Norm | 2026 Prudential Norms on Declaration of Dividends |
| Legal Basis | FEMA 1999 |
RBI/2025-2026/232 - Standalone Primary Dealers (SPD) Amendment Directions, 2026
Background
The Reserve Bank of India issued the Master Direction for Standalone Primary Dealers (SPDs) on November 28, 2025. This current amendment provides necessary clarifications regarding the calculation of Tier 1 Capital, specifically focusing on how quarterly profits and various deductions are treated for compliance with exposure norms.
Key Decision
- Tier 1 Capital Definition: It now explicitly includes paid-up capital, statutory reserves, and free reserves, including quarterly profits (subject to audit/limited review).
- Profit Calculation Formula: The formula for eligible quarterly profit is: EPt = NPt - 0.25 * D. (Where EPt = Eligible profit, NPt = Net profit, and D = average dividend of last 3 years).
- Mandatory Deductions: Current year losses, intangible assets, and deferred tax assets must be fully deducted from Tier 1 capital.
- Compliance Basis: Exposure norms (as per paragraphs 159(1) to 159(6)) must now be calculated using the latest available financial statements.
Exam Relevance
- Formula Validity: The inclusion of quarterly profits in Tier 1 capital is subject to a specific formula deducting 25% of the average dividend. Exam Insight: Be prepared to calculate the 'Eligible Profit' (EPt) based on given data points in a numeric question.
- Deduction Items: Losses, intangible assets, and deferred tax assets are mandatory deductions. Exam Insight: Questions often test your knowledge of what is 'added' versus 'deducted' from regulatory capital components.
- Frequency of Review: Financial statements used for compliance must be audited or subject to limited review. Exam Insight: Regulatory bodies prioritize data accuracy; noting 'limited review' as an acceptable standard is high-yield.
Summary Table
| Component | Treatment |
|---|---|
| Quarterly Profits | Included (Subject to audit & dividend adjustment) |
| Current Year Losses | Fully Deducted |
| Intangible Assets | Fully Deducted |
| Compliance Basis | Latest Financial Statements |
Reserve Bank of India (Asset Reconstruction Companies) Amendment Directions, 2026
Background
The RBI issued the Master Direction on Asset Reconstruction Companies (ARCs) on November 28, 2025. This amendment provides specific regulatory clarity on how 'Owned Funds' are calculated, specifically regarding the inclusion of quarterly profits.
Key Decision
The RBI has amended paragraph 4(11)(i)(c) of the Master Direction. ARCs can now include quarterly profits in their Owned Fund calculation, provided they undergo a limited review or audit by statutory auditors and deduct the average dividend paid over the last three years using a specific formula: EPt = NPt - 0.25*Dt. Any losses incurred must be fully deducted.
Exam Relevance
- Owned Fund Computation: The new rule allows the inclusion of quarterly profits in owned funds. Exam Insight: Questions may test the conditions for including these profits, specifically the requirement for a limited review/audit.
- Formula Application: The formula EPt = NPt - 0.25 * Dt is critical. Exam Insight: High-yield questions often ask for the calculation logic or the deduction factor (0.25).
- Loss Treatment: Losses in the current year must be fully deducted. Exam Insight: Examiners focus on 'fully' versus 'partially' to test depth of understanding.
Summary Table
| Component | Status |
|---|---|
| Circular Date | March 10, 2026 |
| Effective Date | Immediate |
| Key Formula | EPt = NPt - 0.25 * Dt |
| Profit Inclusion | Permitted (with conditions) |
Reserve Bank of India (Mortgage Guarantee Companies) Amendment Directions, 2026
Background
The RBI issued the original Master Direction for Mortgage Guarantee Companies (MGCs) on November 28, 2025. This amendment refines the accounting standards for 'Owned Fund' and provides clarity on the 'Tier 1 Capital' calculation to ensure financial stability and accurate compliance with investment concentration norms.
Key Decision
- Owned Fund Definition: It now includes quarterly profits (subject to specific auditing and dividend adjustment rules) and excludes revaluation reserves and intangible assets.
- Right-of-Use (ROU) Assets: MGCs are no longer required to deduct ROU assets (Ind AS 116) from the Owned Fund, provided they relate to tangible assets.
- Tier 1 Capital: Clarified that Tier 1 Capital for concentration norms must be based on the latest available financial statements (audited or limited review).
Exam Relevance
- Owned Fund Formula: The calculation uses EPt = NPt - 0.25 * Dt. Exam Insight: Question setters may test your ability to identify the deduction factors or the specific quarterly profit inclusion criteria.
- ROU Assets: Under Ind AS 116, tangible ROU assets are exempted from deduction. Exam Insight: Focus on this technical exception as it is a specific regulatory relief.
- Effective Date: These directions are effective from March 10, 2026. Exam Insight: Always memorize the effective date for major regulatory updates.
| Feature | Before Amendment | After Amendment |
|---|---|---|
| Quarterly Profits | Not explicitly detailed | Included if audited/limited review |
| ROU Asset (Tangible) | Deducted from Owned Fund | Not required to be deducted |
| Tier 1 Basis | Undefined clarity | Latest audited/limited review statements |
RBI/2025-2026/229: Amendment to Core Investment Companies (CIC) Directions
Background
In November 2025, the RBI issued the Master Direction for Core Investment Companies (CICs). Following requests for clarification on how to calculate 'Owned Funds'—a critical metric for CIC regulation—the RBI has issued an amendment to refine the inclusion of quarterly profits and the treatment of specific assets.
Key Decision
The amendment updates the definition of 'Owned Funds' for CICs. Key changes include the explicit inclusion of quarterly profits (subject to specific auditing and dividend adjustment conditions) and the exclusion of Right-of-Use (ROU) assets from the deduction list if the underlying asset is tangible.
Summary Table
| Component | Treatment |
|---|---|
| Quarterly Profits | Included, if audited/limited review is done |
| Profit Formula | EPt = NPt - 0.25 * Dt |
| ROU Assets | No longer deducted if underlying asset is tangible |
| Current Year Losses | Fully deducted from Owned Fund |
Exam Relevance
- Owned Fund Definition: The formula EPt = NPt - 0.25 * Dt is a specific technical inclusion. Exam Insight: Numeric formulas related to capital computation are high-probability targets for MCQs.
- ROU Assets (Ind AS 116): CICs are now exempted from deducting ROU assets of tangible nature. Exam Insight: Examiners often test exceptions to general deduction rules.
- Audit Requirement: Inclusion of quarterly profits requires limited review or audit. Exam Insight: Regulatory compliance conditions for financial reporting are frequent analytical questions.
RBI/2025-2026/228: Amendment to Owned Fund Computation for HFCs
Background
The Reserve Bank of India (RBI) issued the Master Directions for Housing Finance Companies (HFCs) on November 28, 2025. To ensure greater clarity and uniformity in financial reporting, the RBI has now issued an amendment specifically addressing the components that constitute the 'Owned Fund' of these entities.
Key Decision
The definition of 'Owned Fund' has been updated. Key changes include:
- Inclusion of Quarterly Profits: HFCs can now include quarterly profits in their Owned Fund, provided the financial statements undergo a limited review or audit.
- Profit Calculation Formula: The eligible profit for quarter 't' is calculated as: EPt = NPt - 0.25 * D, where 'D' is the average dividend paid in the last three years.
- Deduction Rules: Losses for the current year must be fully deducted. However, Right-of-Use (ROU) assets (under Ind AS 116) do not need to be deducted if the underlying asset is tangible.
Exam Relevance
- Definition of Owned Fund: Understanding what is included (equity, compulsorily convertible preference shares) vs. excluded (revaluation reserves, intangible assets) is a common area for technical questions. Exam Insight: Focus on the specific items that reduce the fund, such as accumulated losses and book value of intangible assets.
- Accounting Standard Integration: The reference to Ind AS 116 regarding ROU assets highlights the intersection of accounting standards and regulatory banking norms. Exam Insight: Questions may test your knowledge of how standard accounting treatments for leases interact with capital computation.
- Dividend Adjustment: The formula for calculating eligible profit using a 25% (0.25) factor for dividends is a high-yield calculation-based concept. Exam Insight: Memorize the variable 'D' representing the average of the last three financial years.
| Item | Treatment |
|---|---|
| Quarterly Profits | Included (subject to audit) |
| Current Year Losses | Fully Deducted |
| ROU Assets (Tangible) | Not Deducted |
| Revaluation Reserves | Excluded |
Reserve Bank of India (Non-Banking Financial Companies - Concentration Risk Management) Second Amendment Directions, 2026
Background
The Reserve Bank issued the Master Direction on Concentration Risk Management for NBFCs on November 28, 2025. This amendment refines how NBFCs calculate their capital base when managing concentration risks.
Key Decision
- Clarification of Definitions: 'Owned Fund' and 'Tier 1 Capital' are now explicitly aligned with the Prudential Norms on Capital Adequacy Directions, 2025.
- Auditor Verification: NBFCs must now obtain an external auditor's certificate after capital augmentation and submit it to the Department of Supervision before adding these funds to their capital base for concentration norms.
- Standardized Reporting: Tier 1 capital used for compliance must be derived from the latest available financial statements (audited or subject to limited review).
Exam Relevance
- Tier 1 Capital Definition: The norms for Concentration Risk Management are now strictly linked to the Prudential Norms on Capital Adequacy Directions, 2025. Exam Insight: Expect questions asking for the source of definition for Tier 1 capital in the context of NBFCs.
- Mandatory Reporting: The requirement for an external auditor's certificate before capital reckoning is a new compliance layer. Exam Insight: Regulatory compliance questions often focus on new audit/reporting requirements.
- Applicability: These amendments are effective immediately (March 10, 2026). Exam Insight: Memorize the effective date as recent circulars are high-yield.
| Feature | Details |
|---|---|
| Circular Date | March 10, 2026 |
| Primary Subject | NBFC Concentration Risk |
| Key Requirement | External Auditor Certificate |
| Reference Norms | Prudential Norms on Capital Adequacy 2025 |
RBI/2025-26/226: Prudential Norms on Capital Adequacy (Owned Fund Amendment)
Background
The Reserve Bank issued the Master Direction on NBFC Prudential Norms on November 28, 2025. It has now become necessary to provide specific clarity on how 'Owned Funds' are calculated, specifically regarding the inclusion of quarterly profits.
Key Decision
The amendment updates Paragraph 9(iii) of the Master Direction, detailing the conditions under which quarterly profits can be included in the 'Owned Fund'.
- Quarterly Audit: Financial statements must undergo a limited review/audit by statutory auditors every quarter.
- Profit Deduction: Quarterly profits must be reduced by 25% of the average dividend paid over the last three years (Formula: EPt = NPt - 0.25 * D * t).
- Losses: Any current year losses must be fully deducted from the Owned Fund.
Exam Relevance
- Owned Fund Formula: The inclusion of quarterly profits is now explicitly formula-based. Exam Insight: Be prepared to calculate 'Eligible Profit' (EPt) using the formula provided; know that 25% of the average dividend is the standardized deduction factor.
- Audit Requirement: Profits can only be included if a quarterly limited review is performed. Exam Insight: Questions may test the prerequisites for counting internal accruals towards capital buffers.
- Effective Date: The changes come into force with immediate effect as of March 10, 2026. Exam Insight: Always prioritize 'immediate effect' circulars for current affairs questions.
Summary Table
| Feature | Requirement/Rule |
|---|---|
| Circular Date | March 10, 2026 |
| Formula for Profit | EPt = NPt - 0.25 * D * t |
| Audit Frequency | Quarterly (Limited Review) |
| Loss Treatment | Fully deducted from Owned Fund |
Lesson Doubts
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