RBI Updates Issue of additional instruments for augmenting regulatory capital for RRBs

RRBs additional options for augmenting regulatory capital funds, so as to maintain the minimum prescribed CRAR, besides meeting the increasing business requirements, it has been decided to allow RRBs to issue Perpetual Debt Instruments (PDIs) eligible for inclusion as Tier 1 capital.

Capital Funds
RRBs are required to maintain a minimum Capital to Risk-weighted Assets Ratio (CRAR) of 9 per cent on an ongoing basis. The capital funds for capital adequacy purpose shall consist of both Tier 1 and Tier 2 capital.
Tier 1 Capital

Common Equity (CET 1) Capital: The elements of Common Equity Capital are,

a) Paid up share capital

b) Share capital deposit

c) Statutory and other disclosed free reserves

d) Capital Reserve representing surplus arising out of sale proceeds of assets.

e) Any surplus (net) in profit and loss account i.e. balance after appropriation

Additional Tier 1 Capital

f) Perpetual Debt Instruments

 Limits on Tier 1 capital

1. The total Tier 1 capital should not be less than 7 per cent of risk weighted assets after the regulatory adjustment / deduction as per paragraph 3.1.4 and 3.1.5 below.
2. Of the minimum Tier 1 capital of 7 percent, the Perpetual Debt Instruments will be limited to 1.5 per cent of the total risk weighted assets.
3. Any additional amount raised through Perpetual Debt Instruments over and above the 1.5 per cent of the risk weighted assets will also be reckoned as Tier 1 capital provided the bank complies with the minimum Tier 1 capital of 7 percent of risk weighted assets before reckoning such additional amounts.

Deductions from Tier 1 Capital

The amount of intangible assets, losses in current year and those brought forward from previous years, deficit in NPA provisions, income wrongly recognized on non-performing assets, provision required for liability devolved on bank etc., shall be deducted from Tier 1 capital.

Treatment of deferred tax assets (DTAs)

i) Deferred tax assets (DTAs) associated with accumulated losses and other such assets should be deducted in full from CET1 capital.

ii) DTAs which relate to timing differences (other than those related to accumulated losses) may, instead of full deduction from CET1 capital, be recognized in the CET1 capital up to 10% of a bank’s CET1 capital [after the application of all regulatory adjustments].

iii) The amount of DTAs which are to be deducted from CET1 capital may be netted with associated deferred tax liabilities (DTLs) provided:

• Both the DTAs and DTLs relate to taxes levied by the same taxation authority and offsetting is permitted by the relevant taxation authority;
• The DTLs permitted to be netted against DTAs must exclude amounts that have been netted against the deduction of goodwill, intangibles and defined benefit pension assets; and
• The DTLs must be allocated on a pro rata basis between DTAs subject to deduction from CET1 capital.

Other Conditions

1. RRBs are not permitted to issue Perpetual Debt Instruments to retail investors / FPIs / NRIs.
2. RRBs are not permitted to invest in the Perpetual Debt Instruments of other banks including RRBs.
3. RRBs shall issue the Perpetual Debt Instruments in Indian currency only.