Reserve Bank of India (Rural Co-operative Banks – Undertaking of Financial Services) Directions, 2025

RBI/DoR/2025-26/297 DoR.AUT.REC.No.216/24.01.042/2025-26 November 28, 2025 Previous Versions Reserve Bank of India (Rural Co-operative Banks – Undertaking of Financial Services) Directions, 2025 (Updated as on April 27, 2026)

Table of Contents Chapter I – Preliminary A. Short Title and Commencement B. Applicability C. Definitions Chapter II – General Guidelines A. Role of the Board B. Investments in Alternative Investment Funds (AIFs) Chapter III – Financial Services A. Insurance Business as Corporate Agent without risk Participation B. Insurance Business on Referral basis without risk Participation (Sharing of Physical Space) C. Merchant Acquisition Business D. Issue of Pre-paid Payment Instruments Chapter IV – Repeal and Other Provisions A. Repeal and saving B. Application of other laws not barred C. Interpretations Annex I

In exercise of the powers conferred by Section 35A read with Section 56 of the Banking Regulation Act, 1949, and all other provisions / laws enabling the Reserve Bank of India ('RBI') in this regard, RBI being satisfied that it is necessary and expedient in the public interest so to do, hereby, issues the Directions hereinafter specified.

Chapter I – Preliminary

A. Short Title and Commencement

1. These Directions shall be called the Reserve Bank of India (Rural Co-operative Banks – Undertaking of Financial Services) Directions, 2025.

2. [1] These Directions shall come into force with immediate effect.

B. Applicability

3. These Directions shall be applicable to Rural Co-operative Banks (hereinafter collectively referred to as 'RCBs' and individually as 'an RCB').

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.

C. Definitions

4. In these directions, unless the context otherwise requires, the terms herein shall bear the meanings assigned to them below:

(1) 'Debtor company' means any company to which an RCB currently has or previously had a loan or investment exposure (excluding equity instruments) anytime during the preceding twelve months;

(2) 'Equity instrument' means equity shares, compulsorily convertible preference shares (CCPS) and compulsorily convertible debentures (CCD);

(3) 'Financial Services Company' means a company engaged in the 'business of financial services'.

Explanation: The 'business of financial services' shall include –

• the forms of business enumerated in clauses (a), (c), (d), (e) of sub- Section (1) of Section 6 of the Banking Regulation Act, 1949 and notified under clause (o) of sub-Section (1) of Section 6 of the Banking Regulation Act, 1949, read with Section 56 (e) of the Banking Regulation Act, 1949;
• the forms of business enumerated in clause (c) and clause (f) of Section 45 I of Reserve Bank of India Act, 1934;
• business of credit information as provided under the Credit Information Companies (Regulation) Act, 2005;
• operation of a payment system as defined under the Payment and Settlement Systems Act, 2007;
• operation of a stock exchange, commodity exchange, derivatives exchange or other exchange of similar nature;
• operation of a depository as provided under the Depositories Act, 1996;
• business of an asset reconstruction company as provided under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002;
• business of a merchant banker, portfolio manager, stock broker, sub- broker, share transfer agent, trustee of trust deeds, registrar to an issue, merchant banker, underwriter, debenture trustee, investment adviser and such other intermediary as provided in the Securities and Exchange Board of India Act, 1992 and the regulations made thereunder;
• business of a credit rating agency as defined in the Securities and Exchange Board of India (Credit Rating Agencies) Regulations, 1999;
• business of a collective investment scheme as defined under the Securities and Exchange Board of India Act, 1992;
• business of managing a pension fund;
• business of an authorised person as defined under the Foreign Exchange Management Act, 1999; and
• such other business as may be specified by RBI from time to time.

(4) 'Non-Financial Services Company' means a company engaged in businesses other than those specified in clause (3) above;

(5) 'Referral Services' means the arrangement between an RCB and a third party financial product provider, for referring the customers of the bank to the third party financial product provider.

5. All other expressions unless defined herein shall have the same meaning 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 Glossary of Terms published by RBI or as used in commercial parlance, as the case may be.

Chapter II – General Guidelines

A. Role of the Board

6. The Board of an RCB shall:

• evaluate and approve any proposal to enter into a long-term agreement for undertaking insurance business on a referral basis, upon completion of the initial contract period,
• approve implementation of customer grievance redressal mechanism for merchant acquisition business,
• approve a policy on merchant acquisition for card transactions,
• evaluate and approve a resolution for undertaking insurance business as a corporate agent without risk participation,
• evaluate and approve resolution for undertaking the business of Pre-paid Payment Instruments (PPIs). Further, it shall have satisfactorily implemented a comprehensive Board approved policy on Customer grievance redressal mechanism which includes escalation matrix for resolution of customer complaints.

B. Investments in Alternative Investment Funds (AIFs)

B.1 General Requirements

7. An RCB's investment policy shall have suitable provisions governing its investments in an AIF Scheme, compliant with extant law and regulations.

B.2 Limits on Investments and Provisioning

8. An RCB shall not individually contribute more than 10 percent of the corpus of an AIF Scheme.

9. The aggregate contribution by all Regulated Entities (REs) in any AIF Scheme shall not be more than 20 percent of the corpus of that scheme.

In this context, 'RE' shall mean:

• Commercial Banks (including Small Finance Banks, Local Area Banks);
• Regional Rural Banks;
• Urban Co-operative Banks;
• State Co-operative Banks / Central Co-operative Banks;
• All-India Financial Institutions;
• Non-Banking Financial Companies (including Housing Finance Companies);

10. Where an RCB contributes more than five percent of the corpus of an AIF Scheme that has downstream investment (excluding equity instruments) in a debtor company of the RCB, the RCB shall be required to make 100 percent provision to the extent of its proportionate investment in the debtor company through the AIF Scheme, subject to a cap equivalent to RCB's direct loan and / or investment exposure to the said debtor company.

11. Notwithstanding the provisions of paragraph 10, where an RCB's contribution is in the form of subordinated units, it shall deduct the entire investment from its capital funds – proportionately from both Tier-1 and Tier-2 capital (wherever applicable).

B.3 Exemptions

12. [2] The RBI may, in consultation with the Government of India, by way of a notification, exempt certain AIFs (Annex I) from these Directions on AIF contained in Part B of Chapter II, except for paragraph 7.

13. [Deleted] [3]

14. [Deleted] [4]

Chapter III – Financial Services

A. Insurance Business as Corporate Agent without risk Participation

A.1 Eligibility Conditions

15. An RCB shall be permitted to undertake insurance business as corporate agent without risk participation, subject to it fulfilling the following terms and conditions:

• An RCB shall be a Scheduled or licensed State Co-operative Bank (SCB) or a licensed District Central Co-operative Bank (DCCB);
• An RCB shall have a minimum positive net worth [real or exchangeable value of paid-up capital and reserves as defined in Section 11 of the Banking Regulation Act, 1949(AACS)] of ₹50 crore as per the latest NABARD Inspection Report;
• An RCB shall have earned net profit for the last three years and shall not have any accumulated losses;
• The Gross NPA of the RCB shall not exceed 10 percent;
• An RCB shall not have violated prudential norms including individual and group exposure norms;
• An RCB shall have complied with the guidelines on loans and advances to directors, their relatives and associated firms;
• Premium collection accounts shall not be opened with the RCB and premium collected shall be directly paid to the insurance companies;
• An RCB shall adhere to IRDAI regulations prescribed for corporate agents;
• An RCB shall submit an undertaking to the effect that banking business will not in any way get contaminated/affected on account of acting as agent of insurance companies; and
• An RCB shall not adopt any restrictive practice of compelling customers to opt for a specific insurance company, particularly in respect of assets financed by the RCB. Customers shall be free to exercise their own choice of insurer.