What changed
RBI inserted new definitions in Chapter I of the RRB Credit Risk Management Directions, 2025, including 'Committee on lending to related parties,' 'Related Party,' 'Reciprocally Related Person,' 'Director,' 'KMP,' 'Promoter,' 'Personal loan,' and 'Lending.' These definitions borrow from the Companies Act, 2013, IBC, 2016, and Banking Regulation Act, 1949. The amendment mandates a Board committee (other than Audit Committee) to sanction loans to related parties.
What it means for you
RRBs must now formally identify and constitute a committee for related party lending, ensuring stricter governance and transparency. The expanded definitions capture a wider net of individuals and entities, including reciprocally related persons and those with control or significant voting rights. This will require RRBs to review their existing credit policies, loan sanctioning processes, and related party transaction monitoring systems to comply with the new framework.
What you must do
- Form a Board-level 'Committee on lending to related parties' (excluding the Audit Committee) to sanction all loans to related parties.
- Update your bank's credit policy and internal definitions to align with the new definitions of related party, director, KMP, promoter, and personal loan.
- Map all existing and prospective borrowers against the expanded related party criteria, including reciprocally related persons and entities under control or significant influence.
- Ensure loan sanctioning workflows route related party proposals through the designated committee and maintain clear documentation of compliance.
Who it affects
Regional Rural Banks (RRBs), Board of Directors of RRBs, Credit risk and compliance teams at RRBs, Audit committees and loan sanctioning committees
What is the 'Committee on lending to related parties' and who can be on it?
It is a Board-level committee specifically tasked with sanctioning loans to related parties. Banks can designate an existing committee (other than the Audit Committee) for this purpose. The committee must be composed of Board members.
Does the new definition of 'Lending' include equity investments?
No. 'Lending' for related parties covers funded and non-funded credit facilities, including investments in debt instruments of related parties, but explicitly excludes equity investments.
Who is a 'Reciprocally Related Person' under these directions?
A reciprocally related person includes a director (excluding independent/nominee directors appointed by government or RBI) of another commercial bank, AIFI, scheduled cooperative bank, or bank subsidiary; a trustee of a mutual fund or AIF set up by such entities; or a relative of such director or trustee.