RBI Issues Revised Capital Adequacy Directions for Small Finance Banks: Amendment to Risk-Weighted Assets Provisions

Overview of the Amendment

The Reserve Bank of India has released updated prudential guidelines for Small Finance Banks through the Reserve Bank of India (Small Finance Banks – Prudential Norms on Capital Adequacy) Second Amendment Directions, 2026 (Revised), bearing reference RBI/2025-26/261, DOR.CRE.REC.453/21-01-002/2025-26, dated March 30, 2026. These revised directions supersede the earlier amendment issued on February 13, 2026, under the same subject matter.

This revision has been introduced in the wake of corresponding changes made to the Reserve Bank of India (Small Finance Banks – Credit Facilities) Amendment Directions, 2026 (Revised), also dated March 30, 2026, ensuring alignment across the regulatory framework governing Small Finance Banks (SFBs).

Statutory Authority

The Reserve Bank of India has exercised its authority under Section 21 and Section 35A of the Banking Regulation Act, 1949, along with all other applicable enabling provisions, to issue these revised directions. The RBI has determined that it is necessary and expedient in the public interest to bring about this modification, thereby providing a clear legal basis for the amendment.

The Base Framework: What Is Being Amended

The amendment operates on the foundation of the Reserve Bank of India (Small Finance Banks – Prudential Norms on Capital Adequacy) Directions, 2025, which serves as the principal directions governing capital adequacy requirements for SFBs.

Specifically, the revised directions modify paragraph 74(6) falling under Chapter IV – Risk Weighted Assets (RWAs) of the principal directions. This particular provision deals with how certain off-balance sheet exposures — namely, irrevocable payment commitments — are to be treated for the purposes of computing capital requirements.

Key Modification: Treatment of Irrevocable Payment Commitments

What Are Irrevocable Payment Commitments?

When a Small Finance Bank issues an irrevocable payment commitment (IPC) to a clearing corporation of a stock exchange on behalf of its client, the transaction creates a contingent liability for the bank. The critical question from a regulatory capital standpoint is: how should such an exposure be treated when computing Risk-Weighted Assets (RWAs)?

The Revised Provision Under Paragraph 74(6)

The revised text of paragraph 74(6) now reads as follows:

"Issue of irrevocable payment commitment by a bank to clearing corporations of stock exchanges on behalf of its client is a financial guarantee with a CCF of 100 per cent. However, capital shall be maintained only on the exposure reckoned as capital market exposure (CME) in terms of the Reserve Bank of India (Small Finance Banks – Concentration Risk Management) Directions, 2025. Thus, capital is to be maintained on the amount taken for CME and the risk weight shall be 125 per cent thereon."