Eased quarterly CRAR norms reduce disclosure volatility without altering audited full-year capital.
FinTech BizNews Service
Mumbai, April 12, 2026: The latest Kotak Institutional Equities report on Banks throws insights on the impact of the recent RBI measures:
Unchanged economics leading to negligible improvement
Recent regulatory changes offer cosmetic capital flexibility but little substantive relief for lenders. The proposed removal of the IFR reflects regulatory confidence in the prudential framework, yet the CET-1 uplift is immaterial (only ~1-3% of current CET-1), limiting its balance-sheet impact. While IFR release provides temporary headroom (~70 bps of the investment book) against MTM volatility, it does not change risk economics. Eased quarterly CRAR norms reduce disclosure volatility without altering audited full-year capital. Despite bond markets signaling a tightening cycle, we await clearer lender responses before revising growth or asset-quality assumptions.
Evolved prudential norms render IFR redundant; marginally positive
The IFR requirement is proposed to be removed, reflecting improvements in the prudential framework. The release of these provisions would help improve their CET-1 ratio, but its contribution is negligible (improvement of 1-3% of current CET-1 capital) and if it is allowed to be released against future losses in the investment portfolio, it gives headroom to manage against unexpected price movement, as seen recently. The headroom is 70 bps of the investment portfolio (see Exhibit 1). Banks were required to maintain an IFR to cushion valuation volatility in their investment portfolios. The IFR was to be built up on a continuing basis until it reaches ~2% of the bank’s Available-for-Sale (AFS), Fair Value Through Profit or Loss (FVTPL) and Held-for-Trading (HFT) investments. The IFR balance was eligible for inclusion in Tier-2 capital. Banks could draw down the IFR balance in excess of the 2% threshold and credit it to the P&L. Where the IFR balance is <2% of the AFS and FVTPL portfolio, drawdown was allowed only under restrictive conditions.
Eased CRAR computation as NPA provisioning condition is removed
RBI has relaxed the computation norms while calculating CRAR on a quarterly basis. The current announcement is likely to reduce the volatility of CRAR reporting across banks between quarters, but it does not provide any material relief as such. The full-year CRAR calculation, which is audited, does not require any adjustments and hence was anyway, comparable. Note that several banks (mostly public banks) do not adjust quarterly profits as they are not audited, while several private banks report both these numbers. The previous guideline required banks to adjust quarterly profits by looking at the provisions made for NPLs and dividends declared previously. This mechanism ensured prudence by limiting capital recognition after accounting for dividend payouts.
Yet to build a rising interest rate cycle in our forecasts
The rising differential between bond yields and repo rates suggests that the bond market is pricing for a hardening rate cycle. However, we are not yet building the same in our current forecast. A hardening rate cycle led by inflation, unlike strong growth, is unlikely to alter our current view on the asset quality cycle, which appears to be benign. We would want to see if lenders turn cautious, which may have a bearing on our growth estimates.
