RBI master-direction · 28 Nov 2025
RBI/DOR/2025-26/188 DOR.CRE.REC.107/07-02-002/2025-26 November 28, 2025 Previous Versions Reserve Bank of India (Small Finance Banks – 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 Evaluatio…
RBI/DOR/2025-26/188 DOR.CRE.REC.107/07-02-002/2025-26 November 28, 2025 Previous Versions Reserve Bank of India (Small Finance Banks – 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 - Statutory Restrictions Chapter V - Regulatory Restrictions Chapter VI - Country Risk Management Chapter VII - Unhedged Foreign Currency Exposure (UFCE) Chapter VIII - Legal Entity Identifier (LEI) for Borrowers Chapter IX - Valuation of Properties - Empanelment of Valuers Chapter X - Filing of Security Interest relating to Immovable (other than equitable mortgage), Movable, and Intangible Assets in CERSAI Chapter XI - [Deleted] Chapter XIA - Maintenance of Cash Credit Accounts, Current Accounts and Overdraft Accounts by Banks Chapter XII - Loan System for Delivery of Bank Credit Chapter XIII - Repeal and other provisions Annex I Annex II Annex III
Introduction
Small Finance Banks (SFBs), 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 SFBs 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 SFBs 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 20, 21 and 35A of the Banking Regulation Act, 1949; 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
These Directions shall be called the Reserve Bank of India (Small Finance Banks – Credit Risk Management) Directions, 2025.
These Directions shall come into effect immediately upon issuance.
B. Applicability
C. Definitions
(i) ‘Bank Guarantee’ shall mean financial and performance guarantees issued by banks on behalf of their clients. A financial guarantee assures payment of money in the event of non-fulfilment of contractual obligations by the client. A performance guarantee provides assurance of compensation if there is delayed or inadequate performance on a contract. A deferred payment guarantee assures payment of instalments due to a supplier of goods.
(ii) ‘Bills Purchased and Discounted’ shall mean negotiable instruments that give the holder the right to receive stated fixed sums on demand or at a fixed or determinable future time. When a bank negotiates a bill payable on demand (sight bill) and provides funds to the holder, at a fee / interest, the facility is referred to as bill purchase. When a bank negotiates bill payable after a usance i.e., at a fixed or determinable future time (usance bill) and provides funds to the holder, at a discount, the facility is referred to as bill discounting. Bills purchased and discounted can be Inland Bills and Foreign Bills. Inland Bills are Bills of Exchange drawn in India and paid in India to a person in India.
(iii) 'Cash credit (CC)' shall mean a facility, under which a customer is allowed an advance up to the credit limit against the security by way of hypothecation / pledge of goods, book debts, standing crops, etc. The facility is a running account and 'Drawing Power - DP' is periodically determined with reference to the value of the eligible current assets. The outstanding amount is repayable on demand.
1[(iiia) ‘Committee on lending to related parties’ shall mean a committee of the Board of the bank entrusted with sanctioning of loans to related parties. Banks may also identify any existing Committee, other than the Audit Committee, for this purpose.
(iiib) ‘Contract or arrangement’ shall have the same meaning as specified in Section 188(1)(a) to (g) of the Companies Act, 2013.
(iiic) ‘Control’ shall have the same meaning as assigned to it under Section 2(27) of the Companies Act, 2013.]
(iv) ‘Current Account’ shall mean a form of demand deposit account wherefrom withdrawals are allowed any number of times depending upon the balance in the account or up to a particular agreed amount and shall also be deemed to include other deposit accounts which are neither Savings nor Term deposit account.
(v) ‘Demand loans’ shall mean all loans repayable on demand (such as cash credit, overdraft, bills purchased and discounted, etc.) and short-term loans with maturity up to one year, whether secured or unsecured, are considered demand loans.
2[‘(va) Director of a bank’ shall have the same meaning as defined in Explanation (b) to Section 20 of the Banking Regulation Act 1949 and would include a nominee director and an independent director.]
(vi) ‘Earnings before Interest and Depreciation (EBID)’ shall have the same meaning as defined for computation of Debt Service Coverage Ratio (DSCR), i.e., EBID = Profit After Tax + Depreciation + Interest on debt + Lease Rentals, if any.
(vii) ‘Entity’ in the context of ‘Unhedged Foreign Currency Exposure’ prescribed in Chapter-VII of these Directions shall mean a counterparty to which a bank has exposure in any currency.
Explanation: Exposure shall mean all fund-based and non-fund-based exposures.
3[‘(viia) Entity’ in the context of a ‘related party’ prescribed in Chapter V shall mean a ‘person’ other than an individual and a Hindu Undivided Family (HUF).]
(viii) ‘Financial hedge' shall mean hedging through a derivative contract with a financial institution. Financial hedge shall be considered only where the entity has documented the purpose and the strategy for hedging at inception of the derivative contract and assessed its effectiveness as a hedging instrument at periodic intervals.
Note: For the purpose of assessing the effectiveness of hedge, guidance may be taken from the applicable accounting standards and the relevant guidance notes of the Institute of Chartered Accountants of India on the matter.
(ix) 'Foreign Currency Exposure (FCE)' of an entity shall mean the gross sum of all items on the entity’s balance sheet that have impact on its profit and loss account due to movement in foreign exchange rates.
4[(ixa) ‘Key Managerial Personnel (KMP)’ of a bank shall have the same meaning as defined in Section 2(51) of the Companies Act, 2013.
(ixb) ‘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.]
(x) ‘Letter of Credit (LC)’ shall mean any arrangement how so ever named or described, that is irrevocable and thereby constitutes a definite undertaking of the issuing bank to honour a complying presentation. An LC confirmed by a bank based and operating in another country is payable by the confirming bank.
(xi) ‘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.
(xii) ‘Natural hedge’ shall mean a hedge arising out of the operations of the company when cash flows offset the risk arising out of the Foreign Currency Exposure (FCE).
Explanation: An exposure shall be considered as naturally hedged only if the offsetting exposure has the maturity / cash flow within the same accounting year. For instance, export revenues (booked as receivable) may offset the exchange risk arising out of repayment obligations of an external commercial borrowing if both the exposures have cash flows / maturity within the same accounting year.
(xiii) ‘Overdraft (OD)’ shall mean a facility, under which a customer is allowed to draw an agreed sum (credit limit) in excess of credit balance in their account. The overdraft facility may be secured (against fixed / term deposits and other securities, like small saving instruments, surrender value of insurance policies, etc.) or clean (i.e. without any security). The overdraft facility might be granted on their current account, savings deposits account or temporary overdraft on credit accounts.
5[(xiiia) ‘Person’ shall have the same meaning as assigned to it under Section 3 (23) of Part I of Insolvency and Bankruptcy Code (IBC), 2016.]
(xiv) 6[‘Personal loans’ shall have the same meaning as defined under Banking Statistics (Harmonised Definitions).]
7[(xiva) Promoter’ shall have the same meaning as assigned to it under Section 2(69) of the Companies Act, 2013.
(xivb) ‘Reciprocally Related Person’ means an individual who is either (a) a director (excluding independent director / Nominee director appointed by the Government or RBI or a statutory body) of another commercial bank, or an AIFI, or a scheduled cooperative bank, or a subsidiary of a commercial bank; or (b) a trustee of a mutual fund or an alternate investment fund established by any of the aforesaid regulated entities; or (c) a relative of such a director or a trustee.
(xivc) ‘Related Party’ with respect to a bank shall mean a related person or a reciprocally related person, or any of the following entities:
