The Reserve Bank of India issued a circular clarifying the regulatory capital treatment of right-of-use (ROU) assets recognised under Indian Accounting Standard 116 on leases for regulated entities calculating Owned Fund, Common Equity Tier 1 capital or Tier 1 capital. ROU assets created under Ind AS 116 do not need to be deducted from Owned Fund, CET1 or Tier 1 (as applicable) where the underlying leased asset is a tangible asset, notwithstanding existing rules requiring deduction of the book value of intangible assets. Instead, the ROU asset must be risk-weighted at 100 percent, aligned with the historical risk weight applied to owned tangible assets. The changes have been incorporated into the relevant Master Directions and apply with immediate effect to all non-banking financial companies (including housing finance companies) and asset reconstruction companies implementing the Companies (Indian Accounting Standards) Rules, 2015.
Reserve Bank of India 2025-03-21
Reserve Bank of India clarifies right-of-use assets are not deducted from regulatory capital for tangible-asset leases and assigns 100 percent risk weight
The Reserve Bank of India clarified the regulatory capital treatment of right-of-use assets under Indian Accounting Standard 116 for regulated entities. ROU assets from tangible leased assets are not deducted from Owned Fund, Common Equity Tier 1, or Tier 1 capital but must be risk-weighted at 100 percent. These changes apply immediately to non-banking financial companies and asset reconstruction companies under the Companies (Indian Accounting Standards) Rules, 2015.