Reserve Bank of India (Regional Rural Banks – Concentration Risk Management) Directions, 2025

1. Starts at once

The rules start the moment RBI issues them.

2. Who must follow this

These rules apply to every regional rural bank.

3. What owned funds means

Owned funds are paid-up capital, the statutory reserve, other free reserves and profit in hand.

4. Government money counts too

Share capital put in by the Central Government and the sponsor bank is counted.

5. Losses come off

Losses carried forward and any shortfall in provisions are taken out.

6. Bad loan reserves are out

Money set aside for bad loans and for fallen investments does not count.

7. Revaluation gains are out

Reserves made by revaluing buildings and land do not count either.

8. Sanctioned or outstanding, higher

The bank counts the higher of the sanctioned limit and the amount drawn.

9. Fully drawn term loans

For a fully drawn term loan the bank may count only the amount drawn.

10. A guarantee counts in full

A guarantee or other non-funded limit is counted at its full value.

11. Better not to lend groups

RBI says a regional rural bank should not be financing group borrowers at all.

12. The test for a group

The test is common management and real control.

13. If you do, name them

Where the bank does lend a group, it must set up a way to identify that group.

14. What a sponsor bank is

The sponsor bank is the bank that set the regional rural bank up.

1. Fifteen and forty per cent

One borrower may get up to 15 per cent of owned funds. One group may get up to 40 per cent.

BankPulse example. A regional rural bank lends to one shopkeeper and to other firms of his family. What that one shopkeeper owes may not cross 15 per cent of the bank's owned funds. Everything the family owes together may not cross 40 per cent. Owned funds is the base here, and it is not the same measure any of the other six rulebooks use.

2. Sponsor bank bonds at ten

Money put into Tier-II bonds of the sponsor bank or any bank stops at 10 per cent of owned funds.

3. Shares and funds at five

Shares, debentures and mutual fund units stop at 5 per cent of the deposit growth.

4. Deposit growth from last year

The share investment limit runs off the deposit growth of the year before.

5. The second hand market counts

Buying those shares from the open market counts against the same limit.

6. Government company bonds free

Bonds of a company the government owns more than half of are outside that limit.

7. The share law still binds

The bank must still follow the Banking Regulation Act rule on holding shares in a company.

8. Sharing a loan with sponsor

Certificates that share a loan with the sponsor bank stay within 15 per cent of the year's fresh lending.

9. Top up loans unsecured

A top up loan against a vehicle is treated as unsecured.

10. Write the loan policy down

The bank must have a set of written loan policies.

11. Name the limits in it

Those policies must state the single borrower and group limits plainly.

12. Papers, sectors and powers

They must also cover paperwork standards, sector limits and who may sanction what.

13. Board checks the spread

The board must look at how widely the lending is spread.

14. Lend small, lend wide

The bank must aim at many smaller borrowers rather than a few large ones.

15. Unsecured consumer credit limits

The board must set a limit for every unsecured consumer loan.

16. The risk committee watches

The risk management committee must watch those limits all the time.

1. The old rules are gone

All earlier concentration risk instructions for these banks stand repealed.

2. Old actions still stand

Anything already done under the old rules is still judged by them.

3. Other laws still apply

These rules sit on top of other laws. They do not take the place of them.

4. RBI's reading is final

Where the wording is unclear, RBI's own reading of it is final.