All Scheduled Commercial Banks
(Excluding Regional Rural Banks)
Basel III Capital Regulations-
Additional Tier 1 Capital
Please refer to the paragraph
1.8 on ‘Coupon Discretion’ under Annex 4 on ‘'Criteria for Inclusion of
Perpetual Debt Instruments (PDI) in Additional Tier 1 Capital' of the Master
Circular, DBR.No.BP.BC.1/21.06.201/2015-16 dated July 1, 2015 on
‘Basel III Capital Regulations’ read with the circular
DBR.No.BP.BC.71/21.06.201/2015-16 dated January 14, 2016 on ‘Master
Circular - Basel III Capital Regulations – Clarification’.
2. It has been decided to amend
Para 1.8(e) of Annex 4 of the Master Circular as under:
“Coupons must be paid out of
‘distributable items’. In this context, coupon may be paid out of current
year profits. However, if current year profits are not sufficient, coupon
may be paid subject to availability of:
(i) Profits brought forward from
previous years, and/or
(ii) Reserves representing
appropriation of net profits, including statutory reserves, and excluding
share premium, revaluation reserve, foreign currency translation reserve,
investment reserve and reserves created on amalgamation.
The accumulated losses and
deferred revenue expenditure, if any, shall be netted off from (i) and (ii)
to arrive at the available balances for payment of coupon.
If the aggregate of: (a) profits
in the current year; (b) profits brought forward from the previous years
and (c) permissible reserves as at (ii) above, excluding statutory
reserves, net of accumulated losses and deferred revenue expenditure are
less than the amount of coupon, only then the bank shall make appropriation
from the statutory reserves. In such cases, banks are required to report to
the Reserve Bank within twenty-one days from the date of such appropriation
in compliance with Section 17(2) of the Banking Regulation Act 1949.
It may be noted that prior approval
of the Reserve Bank for appropriation of reserves as above, in terms of the circular,
DBOD.BP.BC No.31/21.04.018/2006-07 dated September 20, 2006 on ‘Section
17 (2) of Banking Regulation Act, 1949 - Appropriation from Reserve Fund’
is not required in this regard.
However, payment of coupons on
PDIs from the reserves is subject to the issuing bank meeting minimum
regulatory requirements for CET1, Tier 1 and Total Capital ratios including
the additional capital requirements for Domestic Systemically Important
Banks at all times and subject to the restrictions under the capital buffer
frameworks (i.e. capital conservation buffer and counter cyclical capital buffer
in terms of paras 15 and 17 respectively of the Master Circular on Basel
III Capital Regulations dated July 1, 2015 as amended from time to time).
In order to meet the eligibility
criteria for perpetual debt instruments, banks must ensure and indicate in
their offer documents that they have full discretion at all times to cancel
distributions / payments.”
3. These instructions are
applicable with immediate effect.
(S S Barik)
Chief General Manager-in-Charge