Reserve Bank of India (Local Area Banks – Transfer and Distribution of Credit Risk) Directions, 2025
UR
- Applies toLocal area banks
- StatusIn force
- ImportanceMUST READ
- IssuedNov 28, 2025
- Amendmentsnone tracked
- Length31 points in 5 sections · 4 min read
The four dates on this rule
- PublishedNov 28, 2025The day RBI put this document out.
- Starts to applyNot statedNot stated separately in this document. Read the rule itself before you assume a start date.
- Time to get readyNot statedCannot be worked out until the day it starts to apply is known.
- Last date to actNot statedNo date to act by was found in this document. Other dates may sit inside single paragraphs.
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Numbers to remember
| ₹100 crore | A stressed exposure of ₹100 crore or more needs two external valuation reports, at the seller's cost. RBI Para 31 |
| 12 months | After selling a stressed loan the bank takes no fresh exposure to that borrower for at least 12 months. RBI Para 35 |
| March 31, 2022 | The value gap on older security receipts may be provided over a five-year period from the year ending March 31, 2022. RBI Para 46(2) |
| five per cent | The minimum mark up for a counter bid is between five per cent and 15 per cent of the base bid. RBI Para 51(2) |
What it says
Must know
1. Selling only, never buying
A local area 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.
Do it
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.
Background
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 local area 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. Old guidance repealed
All earlier rules on credit risk transfer for local area banks stand repealed from the day these directions arrived.
15. Old actions stay governed
Action already taken under the old rules stays governed by them.
The same subject for other kinds of institution
The same subject for other kinds of institution.
Other RBI rules for local area banks
RBI compliance officer and compliance function rules for local area banks 2026
RBI customer service and fair conduct rules for local area banks 2025
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