Reserve Bank of India allows standalone primary dealers to count quarterly profits in Tier 1 capital and bases exposure compliance on latest financial statements

The Reserve Bank of India has amended its directions for standalone primary dealers to clarify what can be included in Tier 1 capital and which Tier 1 capital measure must be used for compliance with existing exposure norms. The change allows quarterly profits to be included in Tier 1 capital, subject to quarterly audit or limited review by statutory auditors, and requires exposure norm compliance to be assessed using the dealer’s latest available financial statements, whether audited or subject to limited review. Under the revised definition, Tier 1 capital comprises paid-up capital, statutory reserves and other disclosed free reserves, including quarterly profits. Eligible quarterly profits are calculated as net profit up to the relevant quarter minus 0.25 multiplied by the average dividend paid over the previous three financial years and by the quarter number. Current-year losses must be fully deducted, and deductions also apply for investments in subsidiaries where applicable, intangible assets, losses in the current accounting period, deferred tax asset and losses brought forward from previous accounting periods. The amendment took effect immediately.