RBI’s 13 January 2026 Draft Directions on Owned Fund, Tier 1 Capital and Concentration Norms – A Detailed Overview

1. Introduction

On 13 January 2026, the Reserve Bank of India issued a comprehensive set of draft amendment directions aimed at bringing uniformity and clarity to the computation of Owned Fund and Tier 1 Capital across multiple categories of regulated entities. These drafts also realign the basis on which capital is to be considered for credit / investment concentration norms and exposure norms.

The proposals apply to:

  • Non-Banking Financial Companies (NBFCs)
  • Housing Finance Companies (HFCs)
  • Core Investment Companies (CICs)
  • Mortgage Guarantee Companies (MGCs)
  • Asset Reconstruction Companies (ARCs)
  • Standalone Primary Dealers (SPDs)

Stakeholders have been invited to provide comments on these draft amendment directions by 28 January 2026 through the RBI’s “Connect 2 Regulate” facility or by direct submission to the Department of Regulation.

2. Regulatory Background and Rationale

2.1 Existing position on Tier 1 Capital for concentration norms

Under the current framework, many NBFCs (other than NBFC-UL) and ARCs compute their exposure and concentration limits using Tier 1 Capital as on 31 March of the immediately preceding financial year.

Over time, the RBI has received multiple representations from NBFCs and other entities seeking:

  • A review of this reference date-based approach, and
  • Clarification on the specific elements that may or may not be included in Owned Fund and Tier 1 Capital, particularly in the context of quarterly results and new accounting standards such as Ind AS 116 (Right-of-Use assets).

Taking these inputs into account, the RBI has examined the relevant Master Directions and has now proposed explicit clarifications and revisions to:

  • Allow quarterly profits to be factored into capital, subject to safeguards;
  • Align the capital base used for concentration limits with the latest audited or limited-reviewed financial information; and
  • Clarify treatment of Right-of-Use (ROU) assets for certain entities.

2.2 Master Directions proposed to be amended

The draft amendments seek to modify the following key Master Directions:

  1. Reserve Bank of India (Non-Banking Financial Companies – Prudential Norms on Capital Adequacy) Directions, 2025 – via Second Amendment Directions, 2026
  2. Master Direction – Reserve Bank of India (Non-Banking Financial Companies – Concentration Risk Management) Directions, 2025 – via Second Amendment Directions, 2026
  3. Reserve Bank of India (Housing Finance Companies) Directions, 2025 – via Amendment Directions, 2026
  4. Reserve Bank of India (Core Investment Companies) Directions, 2025 – via Amendment Directions, 2026
  5. Reserve Bank of India (Mortgage Guarantee Companies) Directions, 2025 – via Amendment Directions, 2026
  6. Reserve Bank of India (Asset Reconstruction Companies) Directions, 2025 – via Amendment Directions, 2026
  7. Reserve Bank of India (Standalone Primary Dealers) Directions, 2025 – via Amendment Directions, 2026

All these draft amendments are proposed to come into effect immediately upon final notification.

Note: The draft directions are currently at the consultation stage. Final provisions will depend on RBI’s consideration of feedback from industry participants, professional bodies and other stakeholders.

3. Common Cross‑Cutting Proposal: Inclusion of Quarterly Profits

A central theme running through all the draft amendments is the permitted inclusion of quarterly profits in the computation of either Owned Fund or Tier 1 Capital, depending on the entity type.

3.1 Conditions for including quarterly profits

For all affected entities, the RBI proposes that quarterly profits may be included in capital computations subject to a uniform set of conditions:

  • Quarterly limited review:
    The quarterly financial statements must undergo limited review by statutory auditors.

  • Adjustment for average dividend:
    The profits that can be recognised in capital must be reduced by the average dividend paid over the last three years. The eligible profit will be computed using the formula:

    EPt = NPt – 0.25 * D * t

    where:

    • EPt = Eligible profit up to quarter ‘t’ of the current financial year (t = 1 to 4)
    • NPt = Net profit up to quarter ‘t’ of the current financial year
    • D = Average dividend paid over the last three years

  • Full deduction of current-year losses:
    Any loss incurred during the current financial year is required to be fully deducted from Owned Fund / Tier 1 Capital, as applicable.

This methodology effectively creates a conservative filter to ensure that only a prudently adjusted portion of interim profits is recognised for regulatory purposes.

4. Entity-wise Analysis of Draft Amendments

4.1 NBFCs – Prudential Norms on Capital Adequacy

The Reserve Bank of India (Non-Banking Financial Companies – Prudential Norms on Capital Adequacy) Second Amendment Directions, 2026 are intended to refine the definition of Owned Fund for NBFCs.

The RBI derives its authority for these amendments from: