RBI master-direction RBI/DOR/2025-26/307 · 28 Nov 2025
Official title
Reserve Bank of India (Rural Co-operative Banks – Transfer and Distribution of Credit Risk) Directions, 2025
Summary
Check the official recordThe Reserve Bank of India establishes a regulatory framework for Rural Cooperative Banks to manage credit risk through loan transfers. These banks may only act as transferors of stressed loans and cannot participate in other loan transfer types. Banks must maintain a Board-approved policy for loan transfers that ensures independent reporting and due diligence. Transfers must involve the legal transfer of economic interest without providing credit enhancements. For stressed loans, banks must follow specific valuation and price discovery procedures, including the Swiss Challenge method for exposures of ₹100 crore or more. Banks must report all transactions to a notified trade reporting platform. These directions take effect immediately upon placement on the Reserve Bank of India website.
What you must do
Key dates
Who is affected
Thresholds
Exceptions
If you do not comply
RBI/DOR/2025-26/307 DOR.STR.REC.226/21.04.048 /2025-26 November 28, 2025
Credit Risk Transfer and Distributions are resorted to by lending institutions for multitude of reasons ranging from liquidity management and rebalancing their exposures or strategic sales. In this regard, the Reserve Bank hereby issues a comprehensive and self-contained framework of regulatory guidelines governing different avenues of credit risk transfer and distribution. Accordingly, in exercise of powers conferred by sections 21, 35A read with section 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.
In this context, rural co-operative banks shall mean State Co-operative Banks and Central Co-operative Banks, as defined in the National Bank for Agriculture and Rural Development Act, 1981.
Explanation: The above proviso shall be without prejudice to the provisions of Master Direction – External Commercial Borrowings, Trade Credits and Structured Obligations dated March 26, 2019; obtention of guarantees; or products explicitly permitted in terms of RBI guidelines.
Provided that in cases of loan transfers, legal ownership of the loan shall be mandatorily transferred to the transferee(s) to the extent of economic interest transferred.
(1) “credit enhancement” means a contractual arrangement in which an entity provides some degree of added protection to other parties to a transaction so as to mitigate the credit risk of their acquired exposures;
(2) “default’ means non-payment of debt (as defined under the Insolvency and Bankruptcy Code, 2016) when whole or any part or instalment of the debt has become due and payable and is not paid by the debtor or the corporate debtor, as the case may be;
Provided that for revolving facilities like cash credit, default would also mean, without prejudice to the above, the outstanding balance remaining continuously in excess of the sanctioned limit or drawing power, whichever is lower, for more than 30 days.
(3) “Economic Interest” refers to the risks and rewards that may arise out of loan exposure through the life of the loan exposure;
(4) “Lenders” shall include the following set of entities,
Scheduled Commercial Banks; Regional Rural Banks; Local Area Banks; Primary (Urban) Co-operative Banks; State Co-operative Banks/ Central Co-operative Banks; All India Financial Institutions (NABARD, NHB, EXIM Bank, SIDBI and NaBFID); Small Finance Banks; Non-Banking Finance Companies (NBFCs) including Housing Finance Companies (HFCs).
Provided that Regional Rural Banks; Local Area Banks and Primary (Urban) Co-operative Banks/State Co-operative Banks/ Central Co-operative Banks are permitted as only transferor(s) of stressed loans under Chapter IV and are not permitted as transferors(s) or transferee(s) in any other type of loan transfers.
(5) “net book value (NBV)” means the funded outstanding in a loan exposure reduced by the specific provisions made against such exposure;
(6) “permitted transferees” mean the lenders specified below:
Scheduled Commercial Banks, All India Financial Institutions (NABARD, NHB, EXIM Bank, SIDBI and NaBFID), Small Finance Banks; and Non-Banking Finance Companies (NBFCs) including Housing Finance Companies (HFCs).
(7) “personal loans” refer to loan exposures as defined in the RBI circular DBR.No.BP.BC.99/08.13.100/2017-18 dated January 4, 2018.
Explanation: A loan shall be categorised as personal loan if it falls within the purview of the above definition, even if such loans are not explicitly classified so in any regulatory / supervisory reporting.
(8) “portfolio” means a set of loan exposures transferred together at a point of time under the same transfer agreement;
Provided that transfer agreements under which loans are transferred as a portfolio shall list the details of the individual loan exposures which are transferred as a portfolio.
(9) “stressed loans” mean loan exposures that are classified as non-performing assets (NPA) or as special mention accounts (SMA);
(10) “time of transfer” means the point at which the associated risks and rewards, to the extent of economic interest transferred and as documented in the assignment, or novation contract, become binding on the transferor and transferee.
(11) “transfer” means a transfer of economic interest in loan exposures by the transferor to the transferee(s), with or without the transfer of the underlying loan contract, in the manner permitted in these directions;
Explanation: Consequently, the transferee(s) shall “acquire” the loan exposures following a loan transfer.
(12) “transferee” means the entity to which the economic interest in a loan exposure is transferred under these directions;
Provided that a transferee shall not be a person disqualified in terms of Section 29A of the Insolvency and Bankruptcy Code, 2016;
Provided further that in case of transfer of loan exposures of borrowers in whose accounts instances of fraud have been detected by any lender, the transferee(s) shall neither belong to the existing promoter group of such borrower nor shall be a subsidiary / associate / related party etc. (domestic as well as overseas) of any person belonging to the existing promoter group of such borrower.
Explanation I: In market parlance, transferee may be alternatively referred to as the assignee under assignment transactions.
Explanation II: For the purpose of the second proviso above, the term ‘promoter group’ shall have the same meaning as in the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018; and the term ‘related party’ shall have the same meaning as in the Insolvency and Bankruptcy Code, 2016.
