Reserve Bank of India (Local Area Banks – Credit Facilities) Directions, 2025

RBI/DOR/2025-26/229 DOR.CRE.REC.148/07-01-003/2025-26 November 28, 2025 Previous Versions Reserve Bank of India (Local Area Banks – Credit Facilities) Directions, 2025 (Updated as on April 01, 2026)

Table of Contents Introduction Chapter I - Preliminary A. Short Title and Commencement B. Applicability C. Definitions Chapter II - Board Approved Policies A. Role of Board Chapter III - Digital Lending A. General Requirements for bank-LSP Arrangements B. Conduct and Customer Protection Requirements C. Technology and Data Requirement D. Reporting of Credit Information and DLAs E. Loss sharing arrangement in case of default F. General Provisions Chapter IV - Lending against Gold and Silver Collateral A. General Provisions B. Restrictions and Ceilings C. Valuation and Assaying of Gold and Silver collateral D. Loan to Value Ratio (LTV) E. Other Provisions Chapter V - Microfinance A. Definition of Microfinance B. Assessment of Household Income C. Limit on Loan Repayment Obligations of a Household D. Other provisions Chapter VI - Non-Fund Based (NFB) Credit Facilities A. General Conditions B. Guarantees C. Usage of electronic-Guarantee D. Guarantee favouring another RE and Timely Payment of Invoked Guarantee E. Co-acceptances F. Guarantee and related business involving overseas current or capital account transaction Chapter VII - Credit Facility to Real Estate Sector A. Quantum of Loan Chapter VIII - Repeal and other provisions A. Repeal and saving B. Application of other laws not barred C. Interpretations Annex - I

Introduction

Reserve Bank of India (Reserve Bank) is statutorily mandated to operate the credit system of the country to its advantage. In pursuit of this mandate, the Reserve Bank encourages innovation in the financial systems, credit products and delivery mechanisms while ensuring orderly growth, financial stability and the protection of depositors’ and borrowers’ interest. With the progressive deregulation of bank credit, prudential norms primarily serve as regulatory safeguards. These norms, issued from time to time, provide guidance to Local Area Banks (LABs) on the design and delivery of credit-related products and services. These Directions consolidate the instructions issued to local area banks banks on credit facilities.

Accordingly, in exercise of powers conferred by Section 21, 35A and 56 of the Banking Regulation Act, 1949, the Reserve Bank being satisfied that it is necessary and expedient in the public interest so to do, hereby issues these Directions hereinafter specified.

Chapter I - Preliminary

A. Short Title and Commencement

1. These Directions shall be called the Reserve Bank of India (Local Area Banks– Credit Facilities) Directions, 2025.

2. These Directions shall come into effect immediately upon its issuance, unless indicated otherwise.

B. Applicability

3. These Directions shall be applicable to Local Area Banks (hereinafter collectively referred to as ‘LABs’ / ‘banks’ and individually as a ‘LAB’ / ‘bank’).

C. Definitions

(1) For the purpose of these Directions, following definitions shall apply:

(i) ‘Annual Percentage Rate’ (APR) means the same as defined under the Reserve Bank of India (Local Area Banks– Responsible Business Conduct) Directions, 2025.

(ii) ‘Beneficiary’ means the party in whose favour the NFB facility is issued by a bank.

(iii) ‘Bullet Repayment Loans’ means loans where both principal and interest are due for payment at the maturity of the loan.

(iv) ‘Co-acceptance of bills’ means an undertaking to make payment to the drawer of the bill (seller / exporter) on due date if the buyer / importer fails to make the payment on that date.

(v) ‘Collateral Security’ or ‘Collateral’ means an existing asset of the borrower pledged to the lender for availing and securing a credit facility extended by the lender to the borrower.

(vi) ‘Consumption Loan’ means any permissible loan that does not fit the definition of ‘income generating loan’ as defined subsequently.

(vii) ‘Default Loss Guarantee’ (DLG) means a contractual arrangement, called by whatever name, between the bank and another entity, under which the latter guarantees to compensate the bank, for the loss due to default up to a certain percentage of the loan portfolio of the bank, specified upfront. Any other implicit guarantee of similar nature, linked to the performance of the loan portfolio of the bank and specified upfront, shall also be covered under the definition of DLG.

(viii) ‘Digital Lending’ means a remote and automated lending process, largely by use of seamless digital technologies for customer acquisition, credit assessment, loan approval, disbursement, recovery, and associated customer service.

(ix) ‘Digital Lending Apps / Platforms’ (DLAs) means a mobile and / or web-based applications, on a standalone basis or as a part of suite of functions of an application with user interface that facilitate digital lending services. DLAs shall include applications of the bank as well as those operated by Lending Service Provider (LSP) engaged by bank for extending any credit facilitation services in conformity with extant outsourcing guidelines issued by the Reserve Bank.

(x) ‘Guarantee’ means a contract to perform the promise, or discharge the liability, of a third person in the contingent case of his non-performance or default, in terms of The Indian Contract Act, 1872.

(xi) ‘Guarantor’ means the party which issues the guarantee.

(xii) ‘Jewellery’ means items that are designed to be worn as personal adornments.

(xiii) ‘Income Generating Loan’ means loans extended for the purpose of productive economic activities, such as farm credit, loans for business or commercial purposes, loans for creation or acquisition of productive assets etc.

(xiv) ‘Lending Service Provider (LSP)’ means an agent of the bank (including another bank) who carries out one or more of bank’s digital lending functions, or part thereof, in customer acquisition, services incidental to underwriting and pricing, servicing, monitoring, recovery of specific loan or loan portfolio on behalf of the bank in conformity with extant outsourcing guidelines issued by the Reserve Bank.

Provided that, while entities offering only Payment Aggregator (PA) services in terms of the extant instructions issued by the Reserve Bank shall remain out of the ambit of these Directions, any PA also performing the role of an LSP shall comply with Chapter III of these Directions.

(xv) ‘Obligor’ means a party against whose obligations, financial or otherwise, a NFB facility has been issued. In the case of guarantees, the obligor may also be termed as ‘principal debtor’, as defined under the Indian Contract Act, 1872.

(xvi) ‘Ornaments’ means items meant for use as adornment of any object, decorative items, or utensils, excluding those items that fall under the definition of jewellery as defined previously.

(xvii) ‘Primary Gold’ and ‘Primary Silver’ means gold and silver in any form other than in the form of a jewellery, ornaments and coins.

(xviii) ‘Secured portion of an NFB facility’ means the portion of the facility covered by realisable value of tangible security/ collateral estimated on a realistic basis.

(xix) ‘Top-up Loan’ in the context of Chapter IV of these Directions means an additional loan sanctioned over and above an outstanding loan, during the tenor of the original loan, based on the strength of the collateral already pledged for the existing loan.

(2) All other expressions unless defined herein shall have the same meanings as have been assigned to them under the Banking Regulation Act, 1949, or the Reserve Bank of India Act, 1934, or any statutory modification or re-enactment thereto or in other relevant regulations issued by the Reserve Bank or as used in commercial parlance, as the case may be.

Chapter II - Board Approved Policies