Multiple prudential directions for commercial, small finance, payments banks, and AIFIs updated to align with international standards on legal opinions and valuation adjustments.
RBI Updates Capital Adequacy Directions for Financial Institutions
The Reserve Bank of India has issued a series of amendment directions in October 2026 to update prudential norms on capital adequacy for various categories of financial institutions. Amendments cover Commercial Banks, Small Finance Banks, Payments Banks, and All India Financial Institutions (AIFIs).
Key changes include alignment of requirements for clearing member banks and financial institutions to obtain legal opinions on exposure documentation. The amendments reference specific paragraphs—such as 85(6)(i) in Commercial Banks and 75(5)(i) in Small Finance Banks directions—to ensure compliance with international regulatory frameworks. Valuation adjustments for incurred losses and counterparty credit risk are also harmonised with Basel standards.
Harmonisation with Global Standards
The RBI has also amended the Commercial Banks – Forthcoming Instructions Directions, 2025, to refine the methodology for minimum capital requirements on counterparty credit risk. These updates reflect ongoing efforts to integrate domestic prudential norms with the Basel Committee’s risk management guidelines.
Legal teams in financial institutions should review internal compliance protocols, particularly those involving derivative contracts, legal documentation, and capital reporting. The amendments take effect immediately, with field inspections expected to incorporate these changes in forthcoming audits.