What changed
RBI released a self-contained framework for Rural Cooperative Banks (RCBs) on credit risk transfer and distribution, replacing earlier piecemeal guidelines. RCBs can now only transfer stressed loans under Chapter IV and cannot act as transferors or transferees in other loan transfers. Legal ownership must transfer with economic interest in all loan transfers.
What it means for you
RCBs have a clear, unified rulebook for loan transfers, reducing ambiguity and compliance gaps. The restriction to stressed loan transfers only limits their flexibility in managing liquidity or rebalancing portfolios via other loan sales. Banks must ensure legal ownership transfer aligns with economic interest, which may require operational adjustments.
What you must do
- Review and update loan transfer policies to align with the new Directions, especially the stressed loan transfer provisions.
- Ensure all loan transfers include mandatory legal ownership transfer to the extent of economic interest transferred.
- Train staff on the restricted scope: RCBs can only transfer stressed loans and cannot participate in other loan transfers as transferor or transferee.
- Verify that any credit enhancement arrangements comply with the definitions and conditions in the Directions.
Who it affects
State Co-operative Banks, Central Co-operative Banks, Rural Cooperative Banks (RCBs), Lenders involved in loan transfers with RCBs
Can RCBs transfer performing loans under these Directions?
No, RCBs are permitted only as transferors of stressed loans under Chapter IV and cannot transfer performing loans or act as transferees in any loan transfers.
What is the effective date of these Directions?
The Directions came into effect on November 28, 2025, the date they were placed on the RBI website.
Do these Directions apply to all loan transfers by RCBs?
Yes, they apply to all loan transfers including novation or assignment, but only for stressed loan transfers as specified. Other transfers are not permitted unless explicitly allowed by RBI.