The Reserve Bank of India (RBI) issued the “Local Area Banks – Prudential Norms on Capital Adequacy” Directions, 2025, under its powers conferred by Section 35A of the Banking Regulation Act, 1949. These directions, effective immediately from their issuance on 28th November 2025, aim to strengthen the capital framework and ensure financial stability of Local Area Banks (LABs) in line with public interest and sound banking policy. The Directions apply uniformly to all LABs, emphasizing prudential norms on maintaining adequate capital to absorb potential risks, safeguard depositors’ interests, and support the stability of the banking system. The issuance reflects RBI’s proactive regulatory approach to ensure that LABs maintain sufficient capital buffers in response to evolving operational and financial risks. By setting a clear regulatory framework, these directions provide guidelines for the computation, monitoring, and maintenance of capital adequacy, thereby promoting financial discipline and risk management among Local Area Banks.
RESERVE BANK OF INDIA
RBI/DOR/2025-26/227
DOR.CAP.REC.146/21-01-002/2025-26 | Dated: November 28, 2025
Reserve Bank of India (Local Area Banks – Prudential Norms on Capital Adequacy) Directions, 2025
In exercise of the powers conferred by section 35A of the Banking Regulation Act (BR Act), 1949 the Reserve Bank of India being satisfied that it is necessary and expedient in the public interest and in the interest of banking policy so to do, hereby, issues the Directions hereinafter specified.
Chapter I
Preliminary
A Short title and commencement
1. These Directions shall be called the Reserve Bank of India (Local Area Banks – Prudential Norms on Capital Adequacy) Directions, 2025.
2. These Directions shall come into effect immediately upon issuance.
B Applicability
3. These Directions shall be applicable to Local Area Banks (hereinafter collectively referred to as ‘banks’ or ‘LABs’ and individually as a ‘bank’ or ‘LAB’).
Read Full text of the Notification: https://rbidocs.rbi.org.in/rdocs/notification/PDFs/227MD.pdf
