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RBI Know Your Customer Directions for Small Finance Banks

Current · Source: Reserve Bank of India · RBI/DOR/2025-26/200 · issued 28 Nov 2025 · ~1 min read

Quick answerRBI issues updated Know Your Customer (KYC) directions for Small Finance Banks to prevent money laundering and ensure financial system integrity.

The rule, in the simplest words

Small Finance Banks must do strict checks on customers to prevent bad people from using the bank [like money laundering]
Banks need to watch customer transactions and tell the authorities if they see anything suspicious
Some types of investment companies and funds are considered safe and don't need extra checks [like Mutual Funds and Insurance Companies]
Banks must follow these rules even if they have branches in other countries

How it plays out — a real example

A compliance officer at a Small Finance Bank in Mumbai will use these new rules to carefully check the identity of new customers and monitor their transactions to prevent money laundering, and also ensure that the bank's foreign branches follow the same strict rules to keep the financial system safe and stable.

What changed

RBI has updated its Know Your Customer (KYC) directions for Small Finance Banks to enhance customer due diligence and risk management.

What it means for you

These directions will help prevent money laundering and ensure the integrity and stability of the financial system. Small Finance Banks must implement stricter customer identification and due diligence procedures.

What you must do

Implement stricter customer identification and due diligence procedures
Monitor transactions and report suspicious activities to the Financial Intelligence Unit - India
Adopt more stringent KYC/AML standards if there are variances with host country regulators
Notify RBI of any local laws prohibiting implementation of these guidelines

Who it affects

Small Finance Banks, Branches and majority-owned subsidiaries of Small Finance Banks located abroad

❓ Common questions

Regulatory timeline

Decoded by BankPulse 2026-06-17 21:21 IST
Later amended by — rbi-2025-26-164

Built from our lineage records — each fact carries its provenance; missing history simply is not shown (never guessed).

What is the purpose of these directions?

To prevent money laundering and ensure the integrity and stability of the financial system.

What are the key changes in these directions?

Stricter customer identification and due diligence procedures, enhanced risk management, and more stringent KYC/AML standards.

What are the consequences of non-compliance?

Not specified in the document, but non-compliance may lead to regulatory action and reputational risk.

📜 Read the original circular — full text as issued by RBI

a) Appropriately regulated broad based funds such as Mutual Funds, Investment Trusts, Insurance/ Reinsurance Companies, Other Broad Based Funds etc. 
 b) Appropriately regulated entities such as Banks, Asset Management Companies, Investment Managers/ Advisors, Portfolio Managers etc. 
 c) Broad based funds whose investment manager is appropriately regulated. 
 d) University Funds and Pension Funds. 
 e) University related Endowments already registered with SEBI as FII/Sub Account.

Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/DOR/2025-26/200 · issued 28 Nov 2025. The plain-English explanation above is BankPulse’s own independent summary.

🧰 Tools — save, print, templates & related

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Worked example & action-note template

Example: if you are a Compliance officer at a bank this circular applies to (Small Finance Banks, Branches and majority-owned subsidiaries of Small Finance Banks located abroad), your first concrete step on “RBI Know Your Customer Directions for Small Finance Banks” is: “Implement stricter customer identification and due diligence procedures” (RBI issued this 28 Nov 2025).

Circular: RBI/DOR/2025-26/200 -- RBI Know Your Customer Directions for Small Finance Banks
Issued: 28 Nov 2025
Action required: Implement stricter customer identification and due diligence procedures
Action required: Monitor transactions and report suspicious activities to the Financial Intelligence Unit - India
Action required: Adopt more stringent KYC/AML standards if there are variances with host country regulators
Action required: Notify RBI of any local laws prohibiting implementation of these guidelines
Owner: ____________ Target date: ____________
Board/committee approval needed? Y / N
Evidence filed in compliance register on: ____________

Built only from this circular’s own published fields — not legal advice; always confirm against the official RBI source.

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BankPulse Compliance Evidence Pack — generated 03 Aug 2026 · status cross-checked against RBI’s official withdrawal register (refreshed weekly).
Official RBI source: https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=13109&Mode=0 — Plain-English summary by BankPulse (bankpulse.ai), reviewed by our expert reviewer, CA Amit Jain. Independent platform, not affiliated with the Reserve Bank of India; is our own plain-English paraphrase, not RBI’s original wording.