Reserve Bank of India (Non-Banking Financial Companies – Credit Risk Management) Directions, 2025 (Updated as on July 01, 2026)

1. Credit risk spreads

Credit risk left unmanaged can spread into other kinds of risk.

1. Credit risk for finance firms

This document sets the credit risk management rules for non-banking financial companies.

2. Start date

These Directions took effect on the day RBI issued them.

BankPulse example. There is no gap here between issue and effect. The Directions come into effect immediately upon issuance. A bank cannot wait for a separate start date, because there is none.

3. Who is covered

These Directions apply to non-banking financial companies.

1. Board approves the policies

The Board must approve policies covering every area these rules name.

1. Test the hard cases

Sensitivity tests must cover project delays and cost overruns, mainly on infrastructure.

2. Check the promoter money

The source and quality of the promoter's own capital must be checked.

3. Parent debt is not equity

Debt of the parent company must not be passed off as equity in the subsidiary.

4. Outside work is no excuse

Work done by others cannot replace the lender's own basic checks.

1. Board owns related party rules

The Board carries overall responsibility for the related party lending policy.

2. Extra safeguards required

The policy must set extra safeguards against the risks of related party lending.

3. Staff and their relatives

The policy must cover lending to specified employees and their relatives.

4. Cap on related party loans

The policy must set a total limit for loans to related parties.

5. Sub-limits within the cap

Inside that total there must be sub-limits for one party and for a group.

6. Inside RBI limits

Those limits must sit inside the exposure limits RBI already sets.

7. Judged transaction by transaction

The materiality threshold applies to each loan on its own.

8. Thresholds may differ

The threshold may differ for different kinds of related party loan.

9. Board sanctions the big ones

A loan above that threshold must be sanctioned by the Board.

10. Smaller loans delegated

A loan below the threshold may be sanctioned under delegated powers.

11. Step out of the room

Anyone connected to the borrower must take no part in the decision.

12. Yearly report to the Board

Loans to specified employees and their relatives are reported to the Board each year.

13. Breach draws action

Breaking or dodging these rules brings supervisory and enforcement action.

14. No loan on own shares

A lender cannot lend against the security of its own shares.

15. No loan on own debentures

A lender cannot lend against its own debentures either.

16. Tax free bonds excepted

Tax exempt bonds it issues are outside that bar.

1. Buy protection only

In the credit default swap market the lender may only buy protection, never sell it.

2. Hedge only what is held

Protection may be bought only to hedge credit risk on bonds actually held.

3. No short positions

Selling protection and taking short positions in these contracts is barred.

4. Contract must be firm

Apart from unpaid premium, the protection contract must be irrevocable.

5. Match the maturities

The maturity of the exposure and of the hedge must both be defined carefully.

6. Name who decides

The contract must name who decides that a credit event has happened.

7. Not the seller alone

That decision cannot rest with the protection seller alone.

8. Buyer may raise it

The protection buyer must be able to tell the seller a credit event has happened.

9. Corporate bonds at 100

Corporate bonds held carry a risk weight of 100 per cent.

BankPulse example. An NBFC holds ₹50 crore of corporate bonds. The risk weight is 100 per cent, so the whole ₹50 crore counts in the capital sums.

10. Exposure moves to the seller

A swap creates an exposure on the protection seller for the event payment.

11. Unprotected part unchanged

The unprotected part of the exposure keeps the risk weight of the asset itself.

12. Mismatch breaks the cover

If the asset differs from the deliverable obligation, an asset mismatch arises.

13. Short hedge is a mismatch

A swap shorter than the asset counts as a maturity mismatch.

14. Cover lost, risk returns

If the conditions stop being met, the exposure goes back onto the underlying asset.

15. No netting for limits

Positive and negative values with the same counterparty cannot be netted for limits.

1. What the identifier is

The legal entity identifier is a 20 digit code that names a party worldwide.

2. Both kinds of exposure

Exposure here covers funded and non-funded, credit and investment alike.

3. Higher of limit or balance

The higher of the sanctioned limit and the outstanding balance is taken.

4. Push the group to enrol

Large borrowers must be encouraged to get codes for parent and group companies.

5. Codes must be renewed

The lender must see that borrowers renew those codes when due.

1. Registry open to all

The central registry records must be open to search by any lender or person.

2. Every charge must be filed

Every transaction creating a security interest must be filed with the registry.

3. File as you go

Charges on current transactions must be filed with the registry as they arise.

1. Old actions preserved

Anything already done under the old rules stays governed by those old rules.

2. Approvals carried over

Approvals given under the cancelled rules are now treated as given under these rules.