What changed
RBI consolidated and updated all existing credit risk management guidelines for Local Area Banks into a single comprehensive direction, effective November 28, 2025. The new directions include chapters on board-approved policies, statutory and regulatory restrictions, unhedged foreign currency exposure, Legal Entity Identifier for borrowers, valuation of properties, CERSAI filing, and maintenance of cash credit, current, and overdraft accounts.
What it means for you
LABs must now operate under a unified credit risk framework, reducing ambiguity and ensuring consistent prudential practices. The inclusion of UFCE and LEI requirements aligns LABs with broader banking norms, increasing compliance burden but strengthening risk management. Banks need to review and update their credit policies, systems, and reporting mechanisms to meet these consolidated standards immediately.
What you must do
- Review and align board-approved credit risk policies with the new Directions, covering all chapters from statutory restrictions to account maintenance.
- Implement systems for capturing and reporting unhedged foreign currency exposure (UFCE) and Legal Entity Identifier (LEI) for eligible borrowers.
- Update procedures for property valuation empanelment and CERSAI filing for security interests on immovable, movable, and intangible assets.
- Ensure cash credit, current, and overdraft accounts are maintained as per the new regulatory requirements specified in Chapter VIIA.
- Train credit and compliance teams on the consolidated framework and monitor adherence to statutory restrictions.
Who it affects
Local Area Banks (LABs), Credit risk management teams at LABs, Board of Directors of LABs, Compliance and audit functions at LABs, Borrowers of LABs (especially those with foreign currency exposure or large credit limits)
When do these Directions take effect?
The Directions come into effect immediately upon issuance, i.e., November 28, 2025. Banks must comply from that date.
What is the scope of these Directions?
They apply exclusively to Local Area Banks (LABs) and cover all aspects of credit risk management, including board policies, statutory restrictions, UFCE, LEI, property valuation, CERSAI filing, and account maintenance.
Do these Directions replace previous RBI guidelines on credit risk for LABs?
Yes, these are consolidated Directions that supersede earlier circulars and guidelines on credit risk management for LABs, as indicated by the 'Repeal and other provisions' chapter.