RBI Basel III AT1 Capital Directions 2025 – PDI Cap Rules

Circular No. DOR.CAP.REC.No.53/21.01.002/2025-26, Dated: 29.09.2025

1. Introduction

The Reserve Bank of India (RBI) has issued new Directions under Basel III Capital Regulations concerning the treatment of Perpetual Debt Instruments (PDIs) within Additional Tier 1 (AT1) capital. These measures are aimed at strengthening the resilience of the banking sector and ensuring prudent management of foreign currency and offshore bond exposures.

2. Cap on PDIs in AT1 Capital

As per the revised framework, the RBI has capped the inclusion of PDIs issued in foreign currency or as rupee-denominated bonds overseas at 1.5% of Risk-Weighted Assets (RWA). This limit is to be calculated based on the most recent audited or reviewed financial statements of the bank. The move ensures that excessive reliance on offshore AT1 instruments does not expose banks to currency or external funding risks.

3. Applicability of the Directions

The new rules apply separately to Scheduled Commercial Banks (SCBs)—excluding Small Finance Banks (SFBs), Payments Banks (PBs), and Regional Rural Banks (RRBs)—as well as to Small Finance Banks and Payments Banks in their respective categories. This clarity ensures uniformity while considering the different regulatory contexts of these institutions.

4. Effective Date and Implementation

The directions will come into effect from October 1, 2025. Banks are expected to review their current capital structures, assess outstanding PDIs, and align their balance sheets with the new cap ahead of the deadline. Early compliance will help mitigate regulatory breaches and reinforce market confidence in the sector’s stability.

5. Conclusion

With these updated directions on PDIs in AT1 capital, the RBI has reinforced its commitment to maintaining a robust, transparent, and risk-sensitive capital framework. By limiting offshore exposure in AT1 instruments, the regulator seeks to safeguard banks from external vulnerabilities while upholding the integrity of Basel III standards in India. This balanced approach supports both financial stability and global alignment of India’s banking regulations.

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