The Reserve Bank of India (RBI) on November 28, 2025 issued the Reserve Bank of India (Small Finance Banks – Prudential Norms on Capital Adequacy) Directions, 2025, prescribing the prudential capital framework for Small Finance Banks (SFBs). The Directions set out Board-approved policy expectations, definitions, components of regulatory capital (CET1, AT1, Tier-2), regulatory adjustments/deductions, detailed rules for calculation of Risk-Weighted Assets (credit, market, operational risk), the leverage ratio framework, and governance for supervisory review and stress-testing.
The Directions detail eligibility, limits and minima for capital instruments, treatment of deferred tax assets and other regulatory adjustments, approaches for external credit assessments and credit risk mitigation, and specific calibrations for operational and market risk capital. They also provide methodologies for specialised exposures (CCPs, SFTs, trading book vs banking book), reporting templates and annexed guidance on stress testing design and execution.
The package contains a Supervisory Review and Evaluation Process (ICAAP) framework under Pillar 2, disclosure and market discipline requirements (Pillar 3), leverage ratio definitions and templates, and annexes with reporting formats and stress-testing guidance — all intended to strengthen capital resilience, risk sensitivity and supervisory transparency for SFBs.
[Notification No. RBI/DOR/2025-26/182]
