In September 2025, the Reserve Bank of India (RBI) released ‘RBI (Basel III Capital Regulations-PDI in AT 1 Capital) Directions,2025’, raising the limit for perpetual debt that banks can raise overseas and use as part of their core capital.
- The RBI has also revised the regulations for Small Business Loans (SBL), permitting more frequent adjustments to the credit risk spread charged to borrowers.
Exam Hints:
News_1
- What? RBI-PDI in AT 1 capital revised
- Applicable to: SCB excluding SFB, PB, RRBs
- Effective from: October 1,2025
- New limit: PDI in overseas issued, upto limit of 1.5% RWA
News_2
- What? SBL rules tweaked, gold loans expanded
- SBL: spread adjustment increased, once in 3 years
- Gold Loan WC: Extended to business used gold as raw material
Key Highlights:
Applicable to: The new direction is applicable to all Scheduled Commercial Banks (SCB) (excluding Small Finance Banks (SFB), Payments Banks (PB) and Regional Rural Banks (RRB)).
Effective from: These Directions shall come into force from October 01, 2025.
New Limit: The 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% of Risk Weighted Assets (RWAs) as per the latest available financial statements.
- Previously, the RBI had capped perpetual debt at 1.5% of RWA, allowing less than half to be raised overseas.
RBI tweaks rules for small business loans, expands lending against gold
In September 2025, the RBI also issued RBI (Lending Against Gold and Silver Collateral) Directions, 2025 and RBI (Interest Rate on Advances) Directions, 2025 pertaining to SBL amendment and gold loan expansion respectively.
Key Highlights:
Spread Adjustments: For loans to small businesses, banks are allowed to adjust the additional interest, or spread charges based on the credit profile of a borrower, once in three years.
- Banks may lower other spread components for the borrower’s benefit before the completion of three years.
- Also, banks can provide borrowers the option to switch over to a fixed-rate loan at the time of reset.
Gold Loan Amendment: Earlier, Banks were generally barred from financing the purchase of gold and silver, except as working capital (WC) for jewellers.
- But now, this provision has been extended, lenders are allowed to provide WC to any borrower using gold as a raw material.
Note:
Perpetual Debt Instruments (PDIs): These are long-term debt securities issued by banks with no maturity date, offering indefinite interest payments instead of principal repayment.
Additional Tier-1 Capital: This is the bank’s core capital that can absorb losses, meeting the Basel III framework for capital adequacy.
About the Reserve Bank of India (RBI):
Governor – Sanjay Malhotra
Headquarters – Mumbai, Maharashtra
Established – 1st April, 1935
