Reserve Bank of India (Small Finance Banks – Undertaking of Financial Services) Directions, 2025 · RBI/DOR/2025-26/179

RBI/DOR/2025-26/179 DOR.AUT.REC.No.98/24.01.041/2025-26

November 28, 2025

Previous Versions

Reserve Bank of India (Small Finance Banks – Undertaking of Financial Services) Directions, 2025 (Updated as on April 27, 2026)

Table of Contents

Chapter I – Preliminary A. Short Title and Commencement B. Applicability C. Definitions

Chapter II – Role of the Board A. Board Approved Policies B. Key responsibilities

Chapter III – General Guidelines A. Forms of Business B. Prudential Regulation for Investments C. Procedure for Application

Chapter IV – Financial Services A. Equipment Leasing and Hire Purchase Business B. Factoring Services C. Primary Dealership Business D. Underwriting Activities E. Agency Business F. Referral Services G. Retailing of Government Securities H. Membership of SEBI approved Stock Exchanges

Chapter V – Repeal and Other Provisions A. Repeal and saving B. Application of other laws not barred C. Interpretations

Annex I

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 so to do, 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 – Undertaking of Financial Services) Directions, 2025.

2. [^1]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').

C. Definitions

4. In these directions, unless the context otherwise requires, the terms herein shall bear the meanings assigned to them below:

(1) [^2]Agency Business: means an arrangement under which a bank acts as an agent of a third-party product or service provider (TPPSP), without risk participation, to facilitate the sale of the latter’s financial products or services (e.g., insurance, mutual fund, pension fund, etc.) to its own customers. Under agency business arrangement, the bank shall enter into an agreement with a TPPSP for sale of only regulated financial products or services. The activities covered under agency business arrangements may inter-alia include marketing, sales, promotion, initial point of contact for redressal of grievance and other after-sale services related to the product or service.

(1A) ‘Assignee’ shall have the same meaning as defined in the Factoring Regulation Act, 2011;

(2) ‘Assignor’ shall have the same meaning as defined in the Factoring Regulation Act, 2011;

(3) ‘Associate’ shall have the same meaning as defined in terms of the Accounting Standards of the Institute of Chartered Accounts of India;

(4) ‘Debtor’ shall have the same meaning as defined in the Factoring Regulation Act, 2011;

(5) ‘Debtor company ’ means any company to which the regulated entity (RE) currently has or previously had a loan or investment exposure (excluding equity instruments) anytime during the preceding twelve months;

(6) ‘Equity instrument’ means equity shares, compulsorily convertible preference shares (CCPS) and compulsorily convertible debentures (CCD);

(7) ‘Factoring’ shall have the same meaning as defined in the Factoring Regulation Act, 2011;

(8) ‘Financial Services Company’ means a company engaged in the ‘business of financial services’.

Explanation: The ‘business of financial services’ shall include –

• the forms of business enumerated in clauses (a), (c), (d), (e) of sub- Section (1) of Section 6 of the Banking Regulation Act, 1949 and notified under clause (o) of sub-Section (1) of Section 6 of the Banking Regulation Act, 1949;
• the forms of business enumerated in clause (c) and clause (f) of Section 45 I of Reserve Bank of India Act, 1934;
• business of credit information as provided under the Credit Information Companies (Regulation) Act, 2005;
• operation of a payment system as defined under the Payment and Settlement Systems Act, 2007;
• operation of a stock exchange, commodity exchange, derivatives exchange or other exchange of similar nature;
• operation of a depository as provided under the Depositories Act, 1996;
• business of an Asset Reconstruction company as provided under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002;
• business of a merchant banker, portfolio manager, stock broker, sub- broker, share transfer agent, trustee of trust deeds, registrar to an issue, merchant banker, underwriter, debenture trustee, investment adviser and such other intermediary as provided in the Securities and Exchange Board of India Act, 1992 and the regulations made thereunder;
• business of a credit rating agency as defined in the Securities and Exchange Board of India (Credit Rating Agencies) Regulations, 1999;
• business of a collective investment scheme as defined under the Securities and Exchange Board of India Act, 1992;
• business of managing a pension fund;
• business of an authorised person as defined under the Foreign Exchange Management Act, 1999; and
• such other business as may be specified by Reserve Bank from time to time.

(9) ‘Government Securities’ shall have the same meaning as defined in the Government Securities Act, 2006;

(10) ‘Hire Purchase’ shall have the same meaning as defined in the Hire Purchase Act, 1972;

(11) ‘Joint Venture’ shall have same meaning as defined in terms of the Accounting Standards of the Institute of Chartered Accountants of India;

(12) ‘Mutual Fund’ shall have the same meaning as defined in SEBI (Mutual Funds) Regulations, 1996;

(13) ‘Non-Financial Services Company’ means a company engaged in businesses other than those specified in clause (viii) above; and

(14) [^3]Referral Services: means an arrangement under which a bank may refer its customers to a TPPSP by making available information about the financial products or services offered by the TPPSP.

Note: Under referral arrangement, the bank shall neither be involved in any of the processes relating to the third-party products or services (TPPS) nor the name or brand of the bank shall feature in any of the product/service documents. No processes relating to TPPS shall either be integrated with the bank’s platform/carried out within the premises of the bank (unless specifically permitted) or be accessible in the form of a micro-site or micro-application, except for an access link to redirect the customer to the TPPSP.

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

Chapter II – Role of the Board

6. The Board of a bank shall be responsible for approval of policies and risk governance in respect of various activities undertaken by the bank.

A. Board Approved Policies

7. A bank shall put in place Board-approved policies for,

• insurance distribution to, inter alia, ensure customer suitability, appropriateness, a clear grievance redressal framework and compensation policy to address service-related issues effectively as;
• governing the corporate agency business of insurance companies undertaken departmentally by the bank. The policy shall, at a minimum, cover the model of insurance distribution to be adopted, customer suitability and appropriateness, and the framework for grievance redressal,
• specifying the risk control measures and prudential norms for exposure limits applicable to each trading member, factoring in parameters such as net worth, business turnover, and other relevant risk indicators (in case the bank intends to function as a Professional Clearing Member in the commodity derivatives segment of SEBI-recognised exchanges); and
• governing the bank’s exposure to trading members, ensuring consistency with the overall risk appetite and regulatory requirements (in case the bank intends to function as a Professional Clearing Member in the commodity derivatives segment of SEBI-recognised exchanges)