RBI master-direction RBI/DOR/2025-26/197 · 28 Nov 2025
Official title
Reserve Bank of India (Small Finance Banks – Treatment of Wilful Defaulters and Large Defaulters) Directions, 2025
Summary
Check the official recordThese Directions establish a transparent procedure for Small Finance Banks to identify and classify wilful defaulters. Banks must form an Identification Committee to examine evidence of wilful default and a Review Committee to finalize the classification. The process requires issuing a show-cause notice and providing the borrower an opportunity for a written representation and a personal hearing. Banks must report wilful defaulters and large defaulters to credit information companies at monthly intervals. Penal measures include a ban on new credit facilities for the defaulter and associated entities. Banks must also monitor the end-use of funds and may commission forensic audits for accounts exceeding board-approved thresholds. These Directions take immediate effect and replace previous instructions on this subject.
What you must do
Key dates
Who is affected
Thresholds
Exceptions
If you do not comply
RBI/DOR/2025-26/197 DOR.FIN.REC.No.116/20-16-003/2025-26 November 28, 2025
The objective of these Directions is to provide for a non-discriminatory and transparent procedure, having regard to the principles of natural justice, for classifying a borrower as a wilful defaulter by banks. The directions also aim to put in place a system to disseminate credit information about wilful defaulters for cautioning lenders to ensure that further institutional finance is not made available to them.
Accordingly, in exercise of the powers conferred by the Sections 21 and 35A of the Banking Regulation Act, 1949; and Section 11 of the Credit Information Companies (Regulation) Act, 2005, the Reserve Bank, being satisfied that it is necessary and expedient in public interest so to do, hereby, issues these Directions hereinafter specified.
(1) These directions shall be called the Reserve Bank of India (Small Finance Banks – Treatment of Wilful Defaulters and Large Defaulters) Directions, 2025.
(2) These directions shall come into force with immediate effect.
(1) These Directions shall be applicable to Small Finance Banks (hereinafter collectively referred to as ‘banks’ and individually as a ‘bank’).
(2) The restrictions on further financial accommodation to wilful defaulters and provisions regarding large defaulters contained in these Directions, shall apply to all entities regulated by the Reserve Bank, irrespective of whether they fall within the definition of ‘lender’ as provided in these Directions or not.
(1) In these Directions, the following definitions shall apply, unless the context otherwise requires:
(i) “borrower” shall mean one who has availed credit facility from a bank;
(ii) “credit facility” shall mean any fund based or non-fund-based facility, including off- balance sheet items like derivatives, guarantees and letters of credit, which a bank has extended to the borrower.
(iii) “credit information company” (CIC) shall mean a company that has been granted a certificate of registration under Section 5 of the Credit Information Companies (Regulation) Act, 2005.
(iv) “default” shall have the same meaning assigned to it in the Reserve Bank of India (Small Finance Banks – Resolution of Stressed Assets) Directions, 2025
(v) “director” shall mean the director of a company which was classified as a large defaulter / wilful defaulter and who was associated with the company at the time when the acts of omission or commission by the company / its directors led to the default.
(vi) “director identification number (DIN)” shall have the meaning assigned to it under the Companies Act, 2013.
(vii) “diversion of funds” shall mean and includes the under- noted occurrences:
(viii) “guarantor” shall mean a person / entity who has guaranteed the credit facility.
(ix) "identification committee" shall mean the committee constituted by a bank for identifying a wilful defaulter and shall comprise of a Whole-Time Director other than the Managing Director and Chief Executive Officer (MD & CEO) / CEO or equivalent official as chairperson and two senior officials as members, not more than two ranks below the chairperson of the committee. In cases where there is only one Whole-Time Director other than the MD & CEO/ CEO or equivalent official, such Whole-Time Director may be part of the review committee if the post of MD & CEO / CEO or equivalent official is vacant. In such cases an official one rank below the Whole-Time Director may chair the identification committee, with two senior officials as members, not more than one rank below the chairperson of the committee.
(x) "independent director" shall have the meaning assigned to it under the Companies Act, 2013.
(xi) "large defaulter" shall mean a defaulter with an outstanding amount of ₹1 crore and above, and -
(xii) "lender" shall mean any of the following entities which has granted a credit facility to the borrower:
(xiii) "nominee director" shall mean a director nominated by a lender, a regulatory authority, or the Central or a State Government.
(xiv) "promoter" shall mean a person who has been named as such in a prospectus or is identified by the company in the annual return, and
(xv) "review committee" shall mean the committee constituted by a bank for the purpose of reviewing the proposal of the Identification Committee and shall comprise of the Whole-Time Director who is the MD & CEO / CEO or equivalent official of the bank as chairperson and two independent directors or non-executive directors or equivalent officials as members. Where the post of MD & CEO / CEO or equivalent official is vacant, the Review Committee shall be constituted with a Whole-Time Director in place of MD & CEO / CEO or equivalent official. In such cases, Review Committee shall be chaired by independent directors or non-executive directors or equivalent officials.
