The Reserve Bank of India has announced comprehensive changes to credit risk management rules for commercial banks, introducing stricter controls on related-party lending and enhanced governance frameworks. The new regulations, which take effect on April 1, 2026, represent a significant overhaul of existing lending practices and aim to strengthen the banking sector's risk management capabilities.

Key Prohibitions and Restrictions

The revised norms establish clear prohibitions on lending to specific categories of related parties. Banks are now barred from providing loans to their promoters, relatives of promoters, and shareholders holding 10% or more equity stake. The restrictions also extend to entities controlled or influenced by these parties, with exceptions only for non-strategic institutional holdings without control rights.

Governance and Approval Framework

The new regulations mandate banks to implement robust governance structures for managing related-party transactions. All banks must adopt board-approved policies covering lending to related parties and establish aggregate and sub-limits for such exposures. The framework includes mandatory recusal requirements for directors, key managerial personnel, and specified employees from decisions involving their own interests or those of related parties.

Loan approval thresholds are structured based on bank size, ensuring appropriate oversight for material transactions:

Monitoring and Compliance Requirements

Banks must establish comprehensive monitoring mechanisms to ensure ongoing compliance with the new regulations. Key requirements include maintaining updated lists of related parties, conducting quarterly compliance reviews, and reporting any deviations to audit committees. Annual disclosure of loans to specified employees is also mandatory under the new framework.

The regulations incorporate whistleblower mechanisms to flag irregular or unethical loans, strengthening internal controls and promoting transparency in lending decisions. Listed banks face additional compliance obligations under capital markets regulator SEBI's disclosure rules and RBI's intra-group exposure limits.

Treatment of Existing Transactions

The RBI has provided clarity on the treatment of existing related-party transactions that may not comply with the revised norms. These transactions can continue until maturity but face restrictions on renewal, repricing, or enhancement unless they meet the new requirements. The central bank stated that existing non-compliant transactions are permitted to continue until there is any enhancement, renewal, re-pricing, or change in terms and conditions.

Scope and Definitions

The regulator has modified the definition of related parties, removing the previous ₹5.00 crore monetary threshold for shareholding considerations. Nominee directors of other banks appointed by statutory bodies are excluded from related-party definitions, while restrictions remain on RBI's own nominee and independent directors. Notably, equity investments fall outside the scope of these new directions, though investments in debt instruments of related parties remain covered.

Enforcement and Penalties

Non-compliance with the new regulations will attract significant enforcement actions from the RBI. Potential penalties include monetary sanctions, additional provisioning requirements, forensic audits, and business restrictions. The central bank has emphasized that circumvention attempts will also face similar enforcement measures, underscoring the seriousness of compliance expectations.

The Reserve Bank of India has announced a significant administrative change that will see it taking over the banking operations of the Delhi government. Starting January 9, 2026, the central bank will assume responsibility for general banking operations and public debt management of the Government of National Capital Territory of Delhi.

Agreement Details

The RBI formalized this arrangement through an official agreement signed under sub-section (1) of Section 21A of the Reserve Bank of India Act, 1934. This legislative provision enables the central bank to enter into such agreements with state governments for banking services.

Scope of Operations

Under the new agreement, the RBI will handle two primary functions for the Delhi government. The central bank will carry out all general banking business operations, which typically include account management, transaction processing, and routine banking services. Additionally, the RBI will manage the rupee public debt of the Delhi government, encompassing debt issuance, servicing, and related financial operations.

Implementation Timeline

The transition will become effective from January 9, 2026, providing approximately two years for preparation and coordination between the RBI and the Delhi government. This timeline allows for proper planning and system integration to ensure seamless banking operations.

The announcement represents a formal consolidation of state government banking operations under the RBI's direct management, following established procedures under the Reserve Bank of India Act.