Capital Requirements

The RBI has instructed banks to maintain adequate capital on a continuous basis for credit, market, and operational risks, among others. Capital adequacy is measured in terms of the Capital to Risk-Weighted Assets Ratio (CRAR). Basel III Capital Regulations specifying minimum capital requirements have been implemented in India from 1 April 2013 in phases.

With respect to the Basel III liquidity standards, the RBI started phasing in implementation of the Liquidity Coverage Ratio (LCR) from January 2015 and planned to implement the Net Stable Funding Ratio (NSFR) from 1 January 2018 for banks in India. On 28 May 2015, the RBI released draft guidelines on NSFR for comments.

RBI issued circular no. RBI/2017-18/178 DBR.BP.BC.No.106/21.04.098/2017-18 dated 18 May 2018 on the Basel III Framework on Liquidity Standards – Net Stable Funding Ratio (NSFR) – Final Guidelines, thereby stipulating NSFR guidelines to ensure reduction in funding risk over a longer time horizon by requiring banks to fund their activities with sufficiently stable sources of funding in order to mitigate the risk of future funding stress. The implementation of NSFR guidelines was subsequently postponed. As per the related RBI circular no. RBI/2020-21/95 DOR.No.LRG.BC.40/21.04.098/2020-21 dated 5 February 2021 on the Basel III Framework on Liquidity Standards – Net Stable Funding Ratio (NSFR), the implementation of NSFR guidelines was further deferred and now stand effective from 1 October 2021.The RBI then issued circular no. RBI/2021-22/151 DOR.No.PRD.LRG.79/ 21.04.098/2021-22 dated 6 January 2022 on the Basel III Framework on Liquidity Standards – Liquidity Coverage Ratio (LCR), Liquidity Risk Monitoring Tools, and LCR Disclosure Standards and Net Stable Funding ratio – Small Business Customers, to align its guidelines with the Basel Committee on Banking Supervision (BCBS) standards and enable banks to manage liquidity risk more effectively, while increasing the threshold limit for deposits and other extensions of funds made by non-financial Small Business Customers from INR 50 million to INR 75 million for the purpose of maintenance of LCR.

This modification is also applicable to deposits and other extensions of funds received from Small Business Customers referred to in the RBI circular DBR.BP.BC.No.106/21.04.098/2017-18 dated 17 May 2018 on ‘Basel III Framework on Liquidity Standards – Net Stable Funding Ratio (NSFR) – Final Guidelines.