Reserve Bank of India (Regional Rural Banks – Transfer and Distribution of Credit Risk) Directions, 2025

1. Selling only, never buying

A regional rural bank may only sell stressed loans; it may never buy loans of any kind.

2. Terms stay unchanged

A transfer must not change the loan's terms; any change is tested against the restructuring rules.

3. No safety nets

Lenders may not offer credit enhancement or liquidity support in any form on loan transfers.

4. Borrowers' rights stand

The transfer must not override borrowers' rights, and needed consents must be in hand.

5. RBI told of make-goods

Every replacement of a transferred loan, or damages paid, is reported to RBI's supervision department.

6. No mixing of money

A servicing bank holds the loan cash flows in trust and never mixes them with its own.

7. Stressed sales, two ways only

Stressed loans move only by assignment or novation, never any other route.

8. Two valuers above 100 crore

A stressed exposure of ₹100 crore or more needs two external valuation reports, at the seller's cost.

BankPulse example. A stressed exposure of ₹120 crore is being transferred. Two external valuation reports are needed, because the exposure is ₹100 crore or more. An exposure of ₹90 crore is below ₹100 crore, so this rule does not apply.

9. Open challenge, big sales

A bilateral stressed sale of ₹100 crore or more must face a public counter bidding round.

10. Twelve months of distance

After selling a stressed loan the bank takes no fresh exposure to that borrower for at least 12 months.

11. Five years for old receipts

The value gap on older security receipts may be provided over a five-year period from the year ending March 31, 2022.

12. The counter bid band

The minimum mark up for a counter bid is between five per cent and 15 per cent of the base bid.

13. Priority sector paper only

A bank may issue 180 day risk sharing certificates to commercial banks. Only priority sector loans above 60 per cent of its advances back them.

14. Risk sharing capped

A risk sharing participation may cover at most 40 per cent of the outstanding, only in accounts not in default.

15. No passing it on

A participation certificate cannot be passed on to any other bank.

1. Ownership must move

Legal ownership must move to the buyer to the extent of the interest transferred.

2. Sellers kept separate

Staff who transfer loans must work and report independently of staff who originate them.

3. A clean break

The transfer must separate the seller at once from the risks and rewards, to the extent transferred.

4. A fifth every year

A board approved plan must set aside at least one fifth of the gap in each financial year.

1. In force on posting

These directions took effect the day they were placed on RBI's website.

2. Who is covered

The directions apply to regional rural banks.

3. One rulebook for transfers

No loan transfer or acquisition may happen outside what this framework permits.

4. A board policy first

A board approved policy sets the standards for due diligence, valuation, systems and oversight.

5. The buyer stands free

The buyer gets an unrestricted right to sell on, with no recourse to the seller beyond what is permitted.

6. No promise to refund

The seller owes no re-purchase, funding or substitution, except for breach of stated warranties.

7. Break the rules, hold capital

If a transfer fails these tests, the buyer holds full capital and the seller keeps the loan on its books.

8. Servicing at arm's length

The seller may service the sold loans only under strict written, arm's length conditions with no hidden support.

9. Top-down identification

The head office actively identifies stressed loans for transfer, and the board reviews those above a threshold.

10. A floor under the discount

The internal valuation's discount rate has a floor: the contracted interest rate charged on the loan.

11. Selling below value hurts now

A sale below net book value is debited to that year's profit and loss account.

12. Even fraud loans move

Even fraud classified loans may transfer to asset reconstruction companies.

13. Unredeemed receipts are losses

Security receipts still unredeemed at the end of the resolution period are treated as loss assets, fully provided.

14. Recoveries shared in proportion

If the loan fails, the two banks split whatever is recovered in proportion.

15. Takeovers need a policy

Taking over a borrower's account from another bank follows a board approved policy with staff accountability.

16. Ask before you take over

The taking bank first obtains the borrower's credit information from the current bank in the set format.

17. Old guidance repealed

All earlier rules on credit risk transfer for regional rural banks stand repealed from the day these directions arrived.

18. Old actions stay governed

Action already taken under the old rules stays governed by them.