New Delhi

The Reserve Bank of India on Friday introduced revised rules governing how banks can account for quarterly profits while calculating their capital adequacy, removing an earlier condition tied to provisions for bad loans.

In a statement, the RBI said it had earlier issued draft amendment directions on April 8, 2026, seeking stakeholder feedback on proposed changes related to the inclusion of quarterly profits in Common Equity Tier 1 (CET1) capital for calculating the Capital to Risk Weighted Assets Ratio (CRAR) of banks.

CRAR is a key indicator used to measure a bank’s financial resilience and ability to absorb potential losses, while CET1 capital represents the core equity capital maintained by banks.

Under the previous framework, commercial banks — excluding Local Area Banks and Regional Rural Banks — were allowed to include current-year quarterly profits in CRAR calculations only if the incremental provisions made for non-performing assets (NPAs) in any quarter of the previous financial year did not vary by more than 25 per cent from the average of all four quarters.

In practical terms, this meant banks could recognise quarterly profits in their capital calculations only when provisions set aside for bad loans remained relatively stable.

The RBI stated that the revised framework is intended to simplify the process by eliminating this qualifying condition linked to NPA provisions.

According to the central bank, the draft proposals were reviewed after receiving feedback from stakeholders, and the suggestions were taken into account before finalising the amendment directions.

The RBI has now issued separate amendment directions applicable to commercial banks, Small Finance Banks, and Payments Banks.

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The move is expected to streamline the process of quarterly capital computation for banks by replacing the earlier NPA-related restriction with a simpler regulatory framework.