RBI Raises Overseas Perpetual Debt Limit for Banks’ Core Capital

The Reserve Bank of India (RBI) has increased the limit for perpetual debt that banks can raise overseas and count as part of their core capital, according to a circular issued late Monday. Perpetual debt, which does not have a maturity date, can now be issued in foreign currency or in Indian rupees overseas and be eligible for inclusion in banks’ additional tier-1 capital up to 1.5% of risk-weighted assets.

Additional tier-1 capital forms the core capital of banks, supporting their financial stability and ability to absorb losses. Previously, while the overall limit for such perpetual debt in bank capital was 1.5% of risk-weighted assets, less than half of this could be raised in foreign currency or overseas rupee issuance. The move allows banks greater flexibility in tapping international markets to strengthen their capital base.

The change is expected to bolster banks’ capital adequacy ratios and support lending capacity, especially amid a growing need for capital to back business expansion and economic growth. Analysts said the adjustment aligns with global banking practices and could make Indian banks more competitive in international funding markets.

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