Small Finance Banks Governance Directions · RBI/DOR/2025-26/180

RBI/DOR/2025-26/180 DOR.HGG.GOV.No.99/29.67.001/2025-26 November 28, 2025

Reserve Bank of India (Small Finance Banks - Governance) Directions, 2025

Table of Contents

Chapter I - Preliminary A. Short title and commencement B. Applicability C. Definitions Chapter II – Constitution of Board and Appointment of Directors Chapter III – MD&CEO, Part-time Chairman and Whole-time Directors Chapter IV – Role of the Board and Individual Directors Chapter V – Board Structure and Practices Chapter VI – Committees of the Board A. Audit Committee of the Board B. Risk Management Committee C. Nomination and Remuneration Committee Chapter VII – Appointment of Chief Risk Officer Chapter VIII – Appointment of Chief Financial Officer and Chief Technical Officer Chapter IX – Remuneration of NEDs, WTDs, MD&CEO, Material Risk Takers, and Control Function staff Chapter X – Regulatory Approvals and Reporting Chapter XI – Repeal and other provisions Annex I Annex II Annex III Annex IV Annex V Annex VI

In exercise of the powers conferred by Section 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, 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 (Small Finance Banks: Governance) Directions, 2025.
2. These Directions shall come into force with immediate effect.

B. Applicability

3. These Directions shall be applicable to Small Finance Banks (hereinafter collectively referred to as 'banks' and individually as a 'bank').

Provided that, in the case of entities converting into Small Finance Banks, the terms and conditions of appointment of existing Directors shall be grandfathered till the completion of their respective terms.

Provided that non-scheduled Small Finance Banks shall be exempt from provisions contained in Chapter-VII relating to ‘Appointment of Chief Risk Officer’ and Chapter-VIII pertaining to ‘Appointment of Chief Financial Officer and Chief Technical Officer’.

4. The contents of this Master Direction shall be read along with other relevant governing statutes and shall be applicable notwithstanding anything to the contrary contained in the licensing conditions, notifications, directions, regulations, guidelines, instructions, etc., issued by RBI before the issue of these Directions.

C. Definitions

5. In these Directions, unless the context states otherwise, the terms herein shall bear the meanings assigned to them below:

(1) ‘Chairperson’ means the Part-time Chairman of the Board of Directors of a bank. (2) ‘Clawback’ means a contractual agreement between the employee and the regulated entity in which the employee agrees to return previously paid or vested remuneration to the entity under certain circumstances. (3) ‘Director’ means a director appointed on the Board of a bank. (4) ‘Independent Director’ shall be as defined in Section 149(6) of the Companies Act, 2013. (5) ‘Major shareholder’ shall have the same meaning as under the Reserve Bank of India (Small Finance Banks: Acquisition and Holding of Shares or Voting Rights) Directions, 2025 (6) ‘Malus’ means an arrangement that permits a bank to prevent vesting of all or part of the amount of a deferred remuneration. Malus arrangement does not reverse vesting after it has already occurred. (7) ‘Relative’ shall have the meaning assigned to it under clause 77 of Section 2 of the Companies Act, 2013. (8) ‘Retention period’ means the period of time after the vesting of instruments which have been awarded as variable pay during which they cannot be sold or accessed. (9) ‘Substantial interest’ shall have the same meaning as assigned to it in Section 5(ne) of the Banking Regulation Act, 1949

6. All other expressions, unless defined herein, shall have the same meaning as have been assigned to them under the Reserve Bank of India Act, 1934 or the Banking Regulation Act, 1949 or the Companies Act, 2013 and Rules made thereunder, or any statutory modification or re-enactment thereto, or Glossary of Terms published by RBI or as used in common or commercial parlance, as the case may be.

Chapter-II Constitution of Board and Appointment of Directors

7. A bank shall undertake a process of due diligence at the time of appointment / reappointment to determine the suitability of the person for appointment / continuing to hold appointment as a director on the Board, based upon qualification, expertise, track record, integrity and other 'fit and proper' criteria. For this purpose, the bank shall obtain necessary information and ‘Declaration & Undertaking’ from the proposed / existing directors in the format enclosed at Annex I.

8. The aforementioned declarations shall be scrutinised by the Nomination and Remuneration Committee, constituted in terms of paragraph 42 to paragraph 46 of these Directions, which shall, based on the information provided in the signed declaration, decide on the acceptance and may make references, where considered necessary to the appropriate authority / persons, to ensure their compliance with the requirements indicated.

Provided that, (i) for assessing integrity and suitability features like criminal records, financial position, civil actions initiated to pursue personal debts, refusal of admission to or expulsion from professional bodies, sanctions applied by regulators or similar bodies, previous questionable business practices etc. shall be considered. (ii) while due diligence of directors other than the members of the NRC shall be carried out by the NRC, due diligence in respect of the members of the NRC shall be carried out by the Board itself and the members of the NRC (being interested parties) shall not be involved in this. (iii) If a member of the NRC has either proposed or seconded the name of a person for appointment as a director on the bank’s Board, such a member of the NRC shall not be a part of the exercise of conduct of due diligence in respect of the person proposed to be appointed as a director. In all such cases, the bank’s Board shall nominate another director, as a temporary member of the NRC, to conduct the exercise of due diligence in respect of the person proposed to be appointed as a Director on the bank’s Board.

9. Broad 'fit and proper’ norms for directors shall include formal qualification, experience, track record, integrity etc. Additionally, a bank shall adhere to the following criteria to determine the 'fit and proper' status of the proposed candidates for independent/Non-Executive Directors (NEDs):

(i) Age: The minimum age shall be 35 years. The upper age limit for NEDs, including the Chair of the Board, shall be 75 years and after attaining the age of 75 years no person can continue in these positions. (ii) Educational qualification - The candidate shall at least be a graduate (which can be relaxed while selecting directors for the categories of farmers, depositors, artisans, etc.) (iii) Experience and field of expertise – In accordance with Section 10A(2)(a) of the Banking Regulation Act, not less than 51 per cent of the total number of members of the Board of Directors of a banking company shall consist of persons who shall have special knowledge or practical experience in respect of one or more of the following areas, namely: (a) Accountancy (b) Agriculture and rural economy, (c) Banking, (d) Co-operation, (e) Economics, (f) Finance, (g) Law, (h) Small-scale industry, (i) Information Technology, (j) Payment & Settlement Systems, (k) Human Resources, (l) Risk Management, (m) Business Management, and (n) any other matter the special knowledge of, and practical experience in, which would, in the opinion of RBI, be useful to the bank.