The Reserve Bank of India has issued a Master Direction setting out consolidated prudential norms on capital adequacy for all Regional Rural Banks (RRBs), bringing existing instructions into a single framework while incorporating modifications and rationalisation. RRBs must maintain a minimum Capital to Risk Weighted Assets Ratio (CRAR) of 9 percent on an ongoing basis, with Tier 1 capital required to be at least 7 percent of risk weighted assets (RWAs) after regulatory deductions. The Direction defines eligible Tier 1 and Tier 2 capital elements, including treatment of revaluation reserves, deferred tax assets and pension-related items, and sets caps such as Tier 2 not exceeding 100 percent of Tier 1 and general provisions and loss reserves in Tier 2 limited to 1.25 percent of RWAs. It also sets detailed eligibility conditions for Perpetual Debt Instruments to qualify as Tier 1 capital, including limits within the minimum Tier 1 requirement, restrictions on investors and RRB cross-holdings, lock-in conditions on interest payments tied to CRAR, and reporting to NABARD following issuance. Annual capital adequacy reporting is to be submitted to the relevant NABARD Regional Office after annual accounts are finalised. The Master Direction comes into effect from April 1, 2025 and repeals specified earlier circulars on RRB capital adequacy, with references in other RBI communications to the repealed circulars to be read as references to the new Direction after the date of repeal.

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