The Reserve Bank of India (RBI) on November 28, 2025, issued the Reserve Bank of India (Local Area Banks - Prudential Norms on Capital Adequacy) Directions, 2025.
The following has been stated: -
•The Reserve Bank of India’s draft Directions, 2025, set prudential norms for Local Area Banks (LABs) on maintaining a minimum CRAR of 9% through Tier 1 and Tier 2 capital, including equity, preference shares, perpetual debt, subordinated debt, and hybrid instruments.
•It prescribes detailed conditions for issuance, lock-in clauses, seniority, limits, and reporting requirements for all capital instruments.
•LABs must observe deductions, cross-holding norms, and capital adequacy for subsidiaries while ensuring compliance with risk weights and regulatory requirements.
•The framework aims to strengthen LABs’ capital base, manage credit and market risks, and safeguard financial stability.
•These Directions shall come into effect immediately upon issuance, that is, November 28, 2025.
[Notification No.:RBI/DOR/2025-26/227 DOR.CAP.REC.146/21-01-002/2025-26]
