The Reserve Bank of India has issued comprehensive Amendment Directions on Lending to Related Parties for banks, non-banking financial companies (NBFCs), cooperative banks, and All India Financial Institutions (AIFIs), introducing stricter governance and transparency measures around related-party transactions. The revised guidelines, incorporating feedback from the draft directions issued in October 2025, will take effect from April 1, 2026.

Key Framework Changes

The updated regulatory framework brings significant modifications to related-party lending practices across the financial sector. Under the amended directions, equity investments in related parties are excluded from regulatory scope, while investments in debt instruments remain covered. The RBI has exempted certain NBFC categories—those without public fund access and customer interface—along with Core Investment Companies (CICs) that primarily lend to group companies.

Transition and Compliance Provisions

To ensure smooth implementation, the RBI has allowed existing non-compliant related-party transactions to continue until enhancement, renewal, re-pricing, or modification occurs. However, such exposures cannot be renewed or reviewed unless fully compliant with new regulations. This approach replaces the earlier proposed one-year run-off period, ensuring non-disruptive implementation while maintaining regulatory oversight.

Enhanced Definition and Scope

The amendment introduces an expanded definition of related parties, aligning with the Companies Act, 2013, and Insolvency and Bankruptcy Code provisions. For banks and NBFCs, related parties now include promoters, directors, key managerial personnel and relatives, plus shareholders holding over 10.00% equity. The definition extends to entities where related parties exercise significant influence, trust structures with related trustees or beneficiaries, and introduces reciprocally related persons for banks.

Materiality Threshold Framework

A new materiality threshold system ensures proportional regulatory approach across different institution sizes:

Disclosure and Governance Requirements

The directions mandate stricter disclosure requirements, with regulated entities reporting aggregate contract and arrangement values with related parties in financial statements. Despite stakeholder suggestions to exclude contracts, the RBI maintained oversight, noting contracts can channel undue benefits to related parties. Exposures above materiality thresholds require Board or dedicated Committee on Lending to Related Parties sanctioning, while loans fully secured by government securities, fixed deposits, or life insurance policies with loan-to-value ratios not exceeding 100.00% are exempt from Board approval.

The Reserve Bank of India has announced a significant liquidity operation, planning to conduct a variable rate repo auction worth ₹1 trillion on January 2. This represents a substantial monetary policy intervention by the central bank to manage banking system liquidity.

Auction Details

The upcoming repo auction carries specific operational parameters that highlight its significance in the current monetary policy framework.

Repo Auction Mechanism

The variable rate repo auction represents a key monetary policy tool used by the RBI to inject liquidity into the banking system. Under this mechanism, banks can borrow funds from the central bank by pledging government securities as collateral. The 5-day tenure indicates a short-term liquidity injection designed to address immediate funding requirements in the banking system.

Market Implications

The ₹1 trillion auction size demonstrates the scale of liquidity management operations undertaken by the RBI. Such repo auctions serve as an important channel for the central bank to influence money market conditions and ensure adequate liquidity availability for banks. The timing of the auction on January 2 positions it strategically at the beginning of the new year, potentially addressing seasonal liquidity patterns in the banking system.