Small Finance Banks Miscellaneous Supervisory Directions

RBI/DoS/2026-27/425 DoS.CO.PPG.19/11.01.005/2026-27 July 31, 2026

Reserve Bank of India (Small Finance Banks – Miscellaneous) Supervisory Directions, 2026

Table of Contents

Chapter I - Preliminary
A. Short Title and Commencement
B. Applicability
C. Definitions
Chapter II - Access to IT Systems
Chapter III - Monitoring of End Use of Funds
Chapter IV - Fair Practices Code - Charging of Interest
Chapter V - Inoperative Accounts / Unclaimed Deposits
Chapter VI - Nomination Facility
Chapter VII - Fraud Prevention Measures
A. Frauds due to Collusion of the Bank Officials
B. Large Value Frauds
C. Retail Loans - Sanction of Bulk Proposals
D. Frauds by Deposit of Fake Title Deeds of Property
E. Frauds in Non-resident Accounts
F. Safe Custody of Critical Documents
G. Accounts opened by Employees
H. Legal Compliance Certificate
I. Legal Compliance Audit
J. Forensic Scrutiny
K. Exercise of Discretionary Power
L. Best Practices Code in Banks
M. Other Instructions
Chapter VIII - Protected Disclosure Scheme
A. Scope and Coverage
B. Procedure for Lodging the Complaint under the Scheme
C. Protected Disclosure Policy
Chapter IX – Vigilance
A. Preamble
B. Introduction
C. Vigilance Angle
D. Chief of Internal Vigilance
D.1 Appointment
D.2 Tenure
D.3 Association with Sensitive Matters
D.4 Submission of Reports and Returns - Review
E. Preventive Vigilance
F. Staff Rotation and Mandatory Leave
G. Complaints
H. Investigation Agency for Conducting Investigations
I. Review of Cases entrusted to Investigating Agencies
J. Action against Persons making False Complaints
K. Liaison with Agencies
Chapter X - Repeal and Other Provisions
A. Repeal and Saving
B. Application of Other Laws Not barred
C. Interpretations

In exercise of the powers conferred by Section 35-A 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 to do so, hereby, issues 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 - Miscellaneous) Supervisory Directions, 2026.
2. These Directions shall come into effect immediately upon issuance.

B. Applicability

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

C. Definitions

4. All expressions used in these Directions, shall have the same meaning as have been assigned to them under the Reserve Bank of India Act, 1934, the Banking Regulation Act, 1949, or any statutory modification or re-enactment thereto, or other regulations issued by RBI or the Glossary of Terms published by RBI, or as used in commercial parlance, as the case may be.

Chapter II - Access to IT Systems

5. The bank shall provide the highest level of 'read only' access to its Information Technology systems and manpower assistance, if required, to RBI’s officers.

Chapter III - Monitoring of End Use of Funds

6. The bank shall evaluate the efficacy of its machinery for post-sanction monitoring and follow-up of advances and make it robust, wherever considered necessary, for preventing diversion of funds through practices such as crediting of term loan disbursements to the current / cash credit accounts of borrowers and utilisation thereof for day-to-day operations, and exclusive reliance on Chartered Accountants’ certification both in regard to infusion of promoters' contribution and deployment of bank’s funds. For this purpose, the systems and procedures of the bank may broadly include the following within the overall regulatory guidelines:

• (1) meaningful scrutiny of the periodical progress reports and operating / financial statements of the borrowers;
• (2) regular visits to the assisted units and inspection of securities charged / hypothecated to the bank;
• (3) periodical scrutiny of the books of accounts of the borrowers;
• (4) stock audits depending upon the extent of exposure;
• (5) obtention of certificates from the borrowers that the funds have been utilised for the purposes approved and in case of incorrect certification, initiation of prompt action as may be warranted, which may include withdrawal of the facilities sanctioned and legal recourse as well. In case a specific certification regarding diversion / siphoning of funds is desired from the auditors of the borrowers, a separate mandate may be awarded to them and appropriate covenants shall be incorporated in the loan agreements; and
• (6) examination of all aspects of diversion of funds during internal audit / inspection of the branches and at the time of periodical reviews.

Chapter IV - Fair Practices Code - Charging of Interest

7. The bank, in the interest of fairness and transparency, shall review its practices regarding mode of disbursal of loans, application of interest and other charges, charging of Equated Monthly Instalments (EMIs), and take corrective action, including system level changes, as may be necessary, to address unfair practices, some of which are briefly explained below:

• (1) Charging of interest from the date of sanction of loan or execution of loan agreement and not from the date of actual disbursement of funds to the customer. For loans disbursed by cheque, charging interest from the cheque date while handing over the cheque to the customer several days later.
• (2) Charging of EMIs on the sanctioned loan amount rather than on the actual disbursed amount, without the knowledge or consent of the borrower.
• (3) Any changes in the amortisation schedule originally provided in the Key Facts Statement (KFS), with each part-disbursement of loan, not being communicated to the borrowers.
• (4) In case of disbursal or repayment of loans during a month, charging interest for the entire month rather than charging interest only for the period for which the loan was outstanding.
• (5) Collecting one or more instalments in advance but reckoning the full loan amount for charging interest.

8. These and other such non-standard practices of charging interest are not in consonance with the spirit of fairness and transparency while dealing with customers. These are matters of serious concern to RBI.

9. The bank may use online account transfers in lieu of cheques for loan disbursal.

Chapter V - Inoperative Accounts / Unclaimed Deposits

10. The bank shall take necessary steps to reduce the number of inoperative accounts and accounts pending for updation / periodic updation of ‘Know Your Customer’ (KYC) and make the process of updation / periodic updation of such accounts smoother and hassle free, including by enabling seamless updation of KYC through mobile / internet banking, non-home branches, and Video Customer Identification Process, in accordance with the relevant provisions of the Reserve Bank of India (Small Finance Banks - Responsible Business Conduct) Directions, 2025.

11. The bank may facilitate the process of activation of accounts of beneficiaries of various Central / State government schemes like Direct Benefit Transfer (DBT) / Electronic Benefit Transfer (EBT) etc., and accounts pending updation / periodic updation of KYC, by taking an empathetic view in such cases, since these accounts mostly pertain to the people from the underprivileged sections of the society.

12. The bank may organise special campaigns for facilitating activation of inoperative accounts and accounts pending for periodic updation of KYC.

13. The bank may also facilitate Aadhaar updation for its customers through its branches providing Aadhaar related services.

14. The Customer Service Committee of the Board shall monitor the progress in reduction of inoperative accounts and accounts pending for updation of KYC and the special efforts made by the bank in this regard.

15. The bank shall report the progress on reduction of inoperative accounts and accounts pending for updation of KYC on a quarterly basis to the Senior Supervisory Manager (SSM), RBI through DAKSH portal.