The Reserve Bank of India (RBI), on September 29, 2025, issued new directions for all Small Finance Banks (SFBs) under the Basel III Capital Regulations. These directions revise the eligible limit for including Perpetual Debt Instruments (PDIs) denominated in foreign currency or rupee denominated bonds overseas as part of a bank’s Additional Tier 1 (AT1) capital. In supersession of the previous circular from October 4, 2021, the RBI has capped the inclusion of these PDIs in AT1 capital at a maximum of 1.5 per cent of the Risk Weighted Assets (RWAs), based on the latest available financial statements. Issued under Section 35A of the Banking Regulation Act, 1949, the revision is deemed necessary in the public interest and is effective from October 01, 2025. This regulatory change directly impacts the capital structure and external fundraising ability of SFBs.
RESERVE BANK OF INDIA
RBI/2025-26/86
DOR.CAP.REC.No.54/21.01.002/2025 Dated: 26 September 29, 2025
All Small Finance Banks
Reserve Bank of India (Basel III Capital Regulations – Perpetual Debt Instruments (PDI) in Additional Tier 1 Capital – Eligible Limit for Instruments Denominated in Foreign Currency/Rupee Denominated Bonds Overseas) Directions, 2025
The Reserve Bank had issued a circular DOR.CAP.REC.No.56/21.06.201/2021-22 dated October 4, 2021 on “Basel III Capital Regulations – Perpetual Debt Instruments (PDI) in Additional Tier 1 Capital – Eligible Limit for Instruments Denominated in Foreign Currency/Rupee Denominated Bonds Overseas” (hereinafter referred to as “the circular”). On a review, it has been decided to revise the existing eligible limit applicable to PDIs denominated in foreign currency/rupee denominated bonds overseas.
2. Accordingly, in exercise of the powers conferred by section 35A of the Banking Regulation Act, 1949 and all other laws enabling the Reserve Bank in this regard, the Reserve Bank being satisfied that it is necessary and expedient in the public interest to do so, hereby issues the Directions hereinafter specified.
3. (i) These Directions shall be called the “Reserve Bank of India (Basel III Capital Regulations – Perpetual Debt Instruments (PDI) in Additional Tier 1 Capital – Eligible Limit for Instruments Denominated in Foreign Currency/Rupee Denominated Bonds Overseas) Directions, 2025”.
(ii) These Directions shall come into force from October 01, 2025.
4. In supersession of the circular ibid, the revised limits applicable to PDIs denominated in foreign currency/rupee denominated bonds overseas shall be as under:
“Perpetual Debt Instruments (PDIs) issued in foreign currency/ rupee denominated bonds overseas shall be eligible for inclusion in Additional Tier 1 (AT1) capital up to a maximum amount of 1.5 per cent of Risk Weighted Assets (RWAs) as per the latest available financial statements (audited or subjected to limited review).”
5. The circular DOR.CAP.REC.No.56/21.06.201/2021-22 dated October 4, 2021 on “Basel III Capital Regulations – Perpetual Debt Instruments (PDI) in Additional Tier 1 Capital – Eligible Limit for Instruments Denominated in Foreign Currency/Rupee Denominated Bonds Overseas” shall stand repealed.
(Usha Janakiraman)
Chief General Manager-in-Charge
