Non-Banking Financial Companies Credit Risk Management Directions

RBI/DOR/2025-26/350 DOR.CRE.REC.No.269/07-02-008/2025-26 November 28, 2025

Previous Versions Reserve Bank of India (Non-Banking Financial Companies – Credit Risk Management) Directions, 2025 (Updated as on July 01, 2026)

Table of Contents Chapter I - Preliminary Chapter II - Board Approved Policies Chapter III - Credit Risk Evaluation Chapter IV - Regulatory Restrictions Chapter V - Regulations on Credit Default Swaps (CDS) – NBFCs as Users Chapter VI - Legal Entity Identifier (LEI) for Borrowers Chapter VII - Filing of Security Interest relating to Immovable (other than equitable mortgage), Movable, and Intangible Assets in CERSAI Chapter VIII - Repeal and other provisions Annex I

Introduction

Non-Banking Financial Companies (NBFCs), in the course of financial intermediation, are exposed to various financial and non-financial risks, of which credit risk is the one of the most significant risks. If not managed effectively, credit risk may have ramifications for a range of other risk categories too. As credit exposures of NBFCs encompass varied sectors, borrower types and products with their own idiosyncratic complexities as well as systemic implications due to interconnectedness among themselves, credit risk management of NBFCs involve a range of prudential tools, including statutory and regulatory restrictions / prohibitions on certain activities. Recognising this, the Reserve Bank has, from time to time, issued guidelines to strengthen credit risk management practices.

Accordingly, in exercise of the powers conferred by sections 45JA, 45L and 45M of the Reserve Bank of India Act, 1934; sections 30A and 32 of the National Housing Bank Act, 1987 and section 3 read with section 31A and section 6 of the Factoring Regulation Act, 2011, and all other provisions / laws enabling the Reserve Bank of India (hereinafter called the Reserve Bank) in this regard, 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 (Non-Banking Financial Companies - Credit Risk Management) Directions, 2025.
2. These Directions shall come into effect immediately upon issuance.

B. Applicability

3. (1) These Directions shall be applicable to the following Non-Banking Financial Companies (hereinafter collectively referred to as ‘NBFCs’ and individually as ‘an NBFC’), subject to layer-wise applicability: (i) NBFC-D registered with the RBI under the provisions of the RBI Act, 1934; (ii) NBFC-ICC registered with the RBI under the provisions of the RBI Act, 1934; (iii) NBFC-Factor registered with the RBI under the provisions of the Factoring Regulation Act, 2011; (iv) NBFC-MFI registered with the RBI under the provisions of the RBI Act, 1934; (v) NBFC-IFC registered with the RBI under the provisions of the RBI Act, 1934; (vi) IDF-NBFC registered with the RBI under the provisions of the RBI Act, 1934; (vii) HFC registered with the RBI under the provisions of the NHB Act, 1987; 1[Provided that, paragraphs 6 through 8 of these Directions shall be applicable exclusively to ‘Notified NBFCs’ as defined in Chapter III - ‘Credit Risk Evaluation’ of these Directions.]

(2) 2[*****]

(3) These Directions are not applicable for the following: (i) MGC registered with RBI under the scheme of Registration of Mortgage Guarantee Companies; (ii) NBFC-P2P registered with the RBI under the provisions of the RBI Act, 1934; (iii) NBFC-AA registered with the RBI under the provisions of the RBI Act, 1934; (iv) CIC registered with the RBI under the provisions of the RBI Act, 1934; (v) SPDs registered with the RBI as NBFCs under the provisions of the RBI Act, 1934; (vi) NOFHC registered with the RBI as NBFC under the provisions of the RBI Act, 1934. (vii) 3[NBFC holding Certificate of Registration as ‘Type I NBFC’], and (viii) ‘NBFCs-BL having customer interface but not availing public funds’.

Note: The applicability under these Directions is in line with the regulatory structure for NBFCs as set out in Reserve Bank of India (Non-Banking Financial Companies – Registration, Exemptions and Framework for Scale Based Regulation) Directions, 2025.

C. Definitions

4. (1) In these Directions, unless the context otherwise requires, (i) 'Credit Default Swap (CDS)' shall mean a bilateral derivative contract on one or more reference assets in which the protection buyer pays a fee through the life of the contract in return for a credit event payment by the protection seller following a credit event of the reference entities. 4[(ia) ‘Committee on lending to related parties’ shall mean a committee of the Board of the NBFC entrusted with sanctioning of loans to related parties. NBFCs may also identify any existing Committee, other than the Audit Committee, for this purpose. (ib) ‘Contract or arrangement’ shall have the same meaning as specified in Section 188(1)(a) to (g) of the Companies Act, 2013. (ic) ‘Control’ shall have the same meaning as assigned to it under Section 2(27) of the Companies Act, 2013.] (ii) ‘Credit event payment’ shall mean the amount which is payable by the credit protection seller to the credit protection buyer under the terms of the credit derivative contract following the occurrence of a credit event. The payment shall be only in the form of physical settlement (payment of par in exchange for physical delivery of a deliverable obligation). (iii) ‘Deliverable asset / obligation’ shall mean any obligation (as per Master Direction – Reserve Bank of India (Credit Derivatives) Directions, 2022) of the reference entity which shall be delivered, under the terms of the contract, if a credit event occurs. (Assets under this clause will rank at least pari-passu or junior to the underlying obligation). 5[(iiia) ‘Director of an NBFC or any other entity’ shall mean a director appointed/elected to the Board of the entity. (iiib) ‘Entity’ in the context of a ‘related party’ shall mean a ‘person’ other than an individual and a Hindu Undivided Family. (iiic) ‘Key Managerial Personnel (KMP)’ of a NBFC shall have the same meaning as defined in Section 2(51) of the Companies Act, 2013. (iiid) ‘Lending’ in the context of a ‘related party’ shall mean extending funded or/ and non-fund-based credit facilities to related parties. While investments in debt instruments of related parties shall be covered for this purpose, equity investments shall be excluded.] (iv) 'Major shareholder' shall mean a person holding 10 per cent or more of the paid-up share capital or ₹5 crore in paid-up shares, whichever is less. 6[(iva) ‘Person’ shall have the same meaning as assigned to it under Section 3 (23) of Part I of Insolvency and Bankruptcy Code (IBC), 2016. (ivb) ‘Personal Loans’ shall have the same meaning as defined under Banking Statistics (Harmonised Definitions). However, for these Directions, personal loans shall exclude loans for investments in financial assets. (ivc) ‘Promoter’ shall have the same meaning as assigned to it under Section 2(69) of the Companies Act, 2013.] (v) ‘Reference obligation’ shall mean the obligation (as per Master Direction – Reserve Bank of India (Credit Derivatives) Directions, 2022) used to calculate the amount payable when a credit event occurs under the terms of a credit derivative contract. [A reference obligation is relevant for obligations that are to be cash settled (on a par-less-recovery basis)]. 7[(va) ‘Related Party’ with respect to a NBFC shall mean a related person, or any of the following entities: (a) where a related person is a partner, manager, KMP, director or a promoter; or (b) where a related person is a shareholder with more than ten per cent of paid-up equity share capital; or (c) where a related person is having control, whether singly or jointly with another person; or (d) where a related person controls more than twenty per cent of voting rights on account of ownership or through a voting agreement or through any other arrangement; or (e) where a related person has the power to nominate a director to its Board; or (f) which is accustomed to act on the advice, direction, or instruction of a related person; or (g) where a related person is a guarantor or a surety; or (h) where a related person is a trustee or an author or a beneficiary and where the entity is in the form of a private trust; or (i) which is related to the related person as a subsidiary or a parent company or a holding company or an associate or a joint venture. Provided that, nothing sub-clause (e) above shall apply in cases where the authority to nominate a director arises exclusively from a lending or financing arrangement. Provided further that, nothing in sub-clause (f) above shall apply to the advice, directions or instructions given in a professional capacity. Provided further that, Government of India / State Government-owned or controlled entities shall not be treated as related parties to a government-owned NBFC just by virtue of the fact that the Government has the common ownership or control of such entities. (vb) ‘Related Person’ with respect to a NBFC shall mean a person, and the relatives of such a person, where the person: (a) is either a promoter, or a director, or a KMP of the NBFC; or (b) owns more than five per cent of paid-up equity share capital of the NBFC or can, either singly or jointly, exercise more than five per cent of the voting rights of the NBFC on account of either ownership or voting agreement or through shareholders’ agreement or through any other arrangement; or (c) can, through an agreement with the NBFC, nominate a director to its Board; or (d) is either singly or jointly, in control of the NBFC.] (vi) ‘Relative’ shall have the same meaning as assigned to it under Clause (77) of Section 2 of the Companies Act, 2013 8[ and rules framed therein]. (vii) 9[*****] 10[(viia) ‘Specified employees’ mean all employees of a NBFC who are positioned upto two levels below the Board and any employee designated as such as per the NBFC’s policy.] (viii) ‘Underlying asset / obligation’ shall mean the asset/obligation which a protection buyer is seeking to hedge.