Small Finance Banks Concentration Risk Management Directions
RBI master-direction RBI/2025-26/189 · 28 Nov 2025
Official title
Reserve Bank of India (Small Finance Banks – Concentration Risk Management) Directions, 2025 (Updated as on July 01, 2026)
RBI master-direction RBI/2025-26/189 · 28 Nov 2025
Official title
Reserve Bank of India (Small Finance Banks – Concentration Risk Management) Directions, 2025 (Updated as on July 01, 2026)
Summary
Check the official recordThe Reserve Bank of India issues these directions to manage concentration risk for Small Finance Banks. Banks must limit credit and investment exposure to a single obligor to 10 percent of capital funds and to a group obligor to 15 percent. Banks must maintain at least 50 percent of their loan portfolio in loans of up to 25 lakh rupees. The directions establish prudential limits for intra-group transactions and exposures, capital market exposures, and country risk. Banks must formulate Board-approved policies for monitoring these risks and report material intra-group transactions. These directions replace previous concentration risk management instructions for Small Finance Banks.
What you must do
Key dates
Who is affected
Thresholds
Exceptions
If you do not comply
RBI/2025-26/189 DOR.CRE.REC.108/07-03-002/2025-26 November 28, 2025
Previous Versions
Reserve Bank of India (Small Finance Banks - Concentration Risk Management) Directions, 2025 (Updated as on July 01, 2026)
The concentration of a bank’s exposures to a single borrower or a group borrower poses significant risks. The Reserve Bank of India (RBI), recognizing the imperative of robust risk management, therefore introduced prudential exposure limits in March 1989. These limits restricted banks’ exposures to individual borrower and group borrowers to a certain percentage of capital funds, laying the foundation for mitigating concentration risk on assets side of their balance sheets. Cognizant of the concentration risk on the liability side of the balance sheet, the RBI introduced Prudential Limits for Inter-Bank Liabilities in 2007 further strengthening its comprehensive approach on concentration risk management. In addition to the prudential measures on concentrations to counterparties, and recognizing the need for sectoral diversification, the RBI has also mandated regulatory exposure limits for capital market exposures and advised banks to establish their own sector-specific thresholds for other sectors.
Accordingly, in exercise of the powers conferred by Sections 21 and 35A 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.
(1) 1 [] (2) 2 [] (3) “Capital Funds for exposure norms” shall comprise Tier I and Tier II capital as defined in the Reserve Bank of India (Small Finance Banks – Prudential Norms on Capital Adequacy) Directions, 2025, and as per the published accounts as on March 31 of the previous year. However, the infusion of capital under Tier I and Tier II, either through domestic or overseas issue, after the published balance sheet date will also be taken into account for determining the exposure ceiling. Other accretions to capital funds by way of quarterly profits, etc., would not be eligible to be reckoned for determining the exposure ceiling. Banks are also prohibited from taking exposure in excess of the ceiling in anticipation of infusion of capital at a future date.
3 [(3A) “Capital Market Intermediaries (CMIs)” shall have the same meaning as defined in the Reserve Bank of India (Small Finance Banks – Credit Facilities) Directions, 2025
(3B) “Collateral Security” or ‘Collateral’ shall have the same meaning as defined in the Reserve Bank of India (Small Finance Banks – Credit Facilities) Directions, 2025]
(4) “Exposure” shall include credit exposure (funded and non-funded credit limits) and investment exposure (including underwriting and similar commitments). The sanctioned limits or outstandings, whichever are higher, shall be reckoned for arriving at the exposure limit. However, in the case of fully drawn term loans, where there is no scope for re-drawal of any portion of the sanctioned limit, banks may reckon the outstanding as the exposure. The credit exposure, investment exposure and exposure for derivative products shall be reckoned as under:
“Credit Exposure” comprises all types of funded and non-funded credit limits, and facilities extended by way of equipment leasing, hire purchase finance and factoring services.
“Investment Exposure” comprises the investments in shares and debentures of companies, PSU bonds, and Commercial Papers (CPs).
Explanation: A bank’s investment in debentures / bonds / security receipts / pass-through certificates (PTCs) issued by a Securitisation Company (SC) / Reconstruction Company (RC) as compensation consequent upon sale of financial assets shall constitute exposure on the SC / RC.
The investment made by a bank in bonds and debentures of corporates which are guaranteed by an RBI Regulated Entoty shall be governed by the Reserve Bank of India (Small Finance Banks – Credit Facilities) Directions, 2025.
(iii) “Credit Exposure of Derivative Products” is the credit exposure arising on account of the interest rate and foreign exchange derivative transactions and gold. For the purpose of exposure norms, a bank shall compute its credit exposure of derivative products using the 'Current Exposure Method', as prescribed in the Reserve Bank of India (Small Finance Banks – Prudential Norms on Capital Adequacy) Directions, 2025.
(5) “Group” (i) For the purpose of exposures other than intragroup exposures, Group shall have the following definition. The concept of 'Group' and the task of identification of the borrowers belonging to specific industrial groups is left to the perception of the bank/financial institution. The bank / financial institution is generally aware of the basic constitution of its clientele for the purpose of regulating its exposure to risk assets. The group to which a particular borrowing unit belongs, may, therefore, be decided by it on the basis of the relevant information available with it, the guiding principle being commonality of management and effective control. In so far as public sector undertakings are concerned, only single borrower exposure limit would be applicable.
In the case of a split in the group, if the split is formalised the splinter groups will be regarded as separate groups. If a bank and financial institution has doubts about the bona fides of the split, a reference may be made to RBI for its final view in the matter to preclude the possibility of a split being engineered in order to prevent coverage under the Group Approach.
(ii) For the purpose of intragroup transactions and exposures, ‘Group’ shall have the following definition: (a) “Group” may be defined as an arrangement involving two or more entities related to each other through any of the following relationships (subsidiary, associate, joint venture and related party as defined in the applicable accounting standards) and a 'group entity' as any entity involved in this arrangement. Explanation: Entities defined under Group for a Small Finance Bank shall be subject to the Licensing Conditions and other regulatory restrictions on them.
(b) Entities considered under the definition of ‘Group Entities’