RBI issues multiple amendment directions in October 2026 to align capital adequacy norms for commercial, payments, small finance, and all-India financial institutions with international standards, particularly on legal opinions and valuation adjustments.
RBI Amends Capital Adequacy Norms for Banks
In a series of amendment directions issued on October 7, 2026, the Reserve Bank of India has updated prudential norms on capital adequacy for various categories of banks and financial institutions. The changes affect Commercial Banks (Twelfth Amendment), Payments Banks (Third), Small Finance Banks (Sixth), and All India Financial Institutions (Fifth).
The amendments primarily focus on two areas: (i) the requirement for clearing member banks to obtain legal opinions, referenced in paragraphs 85(6)(i) of Commercial Banks Directions and similar clauses in others; and (ii) valuation adjustments for incurred but not reported (IBNR) losses. The revisions align domestic prudential norms with evolving international standards, particularly Basel frameworks, enhancing risk-based capital calibration.
In the case of the Commercial Banks – Forthcoming Instructions Amendment Directions, 2026, the RBI also revised methodologies for minimum capital requirements for counterparty credit risk. These updates follow a review of existing provisions in the 2025 Directions and aim to strengthen risk governance and legal enforceability of financial contracts.
Legal practitioners advising financial institutions must now review internal compliance frameworks, especially in relation to legal opinion mandates and capital modelling for counterparty risk. The amendments signal RBI’s continued focus on resilience and international harmonisation in the banking sector.