RBI rules shift bank capital mix to core equity, Rs 80,000 crore PSB fundraising lined up

The Reserve Bank of India's regulatory changes have shifted banks' capital composition towards Common Equity Tier-1 (CET-1) while leaving the overall capital adequacy ratio broadly unchanged. Median CET-1 of scheduled commercial banks rose 97 basis points year-on-year to 16.4% in Q1FY27, with capital adequacy ratio increasing 61 bps to 18.2%. The change followed the RBI allowing quarterly inclusion of current-year profits in CET-1 from May 2026 and discontinuing the Investment Fluctuation Reserve, whose balances were transferred into core capital reserves.

Tier-2 capital fell 28 bps sequentially to 1.66%, the decline visible across all bank groups. The rise in CET-1 was also supported by gains on investment portfolios from falling bond yields. Public sector banks recorded a 98-bps improvement in CET-1, while private banks saw a 118-bps increase, about 80 bps of which reflected a large equity infusion from a change in ownership at one smaller private lender.

Four large public sector banks have announced capital-raising plans exceeding Rs 80,000 crore for FY27, covering Tier-1 and Tier-2 bonds, infrastructure bonds, and equity through QIPs, with a meaningful share through overseas markets. Private banks have obtained enabling approvals without disclosing specific amounts. The stronger core-capital base is expected to support balance sheet growth ahead of the expected credit loss transition in April 2027, though the shift to higher equity could pressure return on equity unless return on assets improves.