What changed
RBI issued a new draft 'Guidance on Regulatory Principles for Model Risk Management' on June 24, 2026, replacing the earlier 2024 draft on credit model risks. The new guidance covers all models across the lifecycle, including AI/ML and third-party models, and applies to a wider set of entities like NBFCs and cooperative banks.
What it means for you
Banks and lenders must now implement holistic model risk governance, oversight, and controls for every model used in business decisions. Weaknesses in model management could expose entities to financial, operational, compliance, and reputational risks. This signals tighter regulatory scrutiny on AI/ML and third-party models.
What you must do
- Review the draft guidance and assess current model risk management frameworks against the new principles.
- Prepare to submit comments to RBI by July 24, 2026, via the 'Connect 2 Regulate' portal or email.
- Identify all models in use, including AI/ML and third-party models, and map their lifecycle stages.
- Strengthen governance, validation, and monitoring processes for model risk across the organization.
Who it affects
Commercial Banks, Small Finance Banks, Payments Banks, Local Area Banks, Regional Rural Banks, Urban Co-operative Banks, Rural Co-operative Banks, All India Financial Institutions, Non-Banking Financial Companies, Asset Reconstruction Companies, Credit Information Companies
What is the scope of this draft guidance?
It applies to all models used by regulated entities, including third-party models and those using AI/ML, across the entire model lifecycle.
When is the comment deadline?
Comments must be submitted by July 24, 2026.
Does this replace the 2024 draft on credit model risks?
Yes, this new guidance provides holistic principles for model risk management, superseding the earlier draft focused on credit models.