Reserve Bank of India (Local Area Banks – Concentration Risk Management) Directions, 2025
UR
- Applies toLocal area banks
- StatusIn force
- ImportanceMUST READ
- IssuedNov 28, 2025
- Amendmentsnone tracked
- Length42 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
| 15 per cent | One borrower may get up to 15 per cent of capital funds. One group may get up to 40 per cent. RBI Para 7 |
| 10 per cent | The bank may lend one NBFC up to 10 per cent of capital funds. For an NBFC group the cap is 15 per cent. RBI Para 10 |
| 7.5 per cent | The bank may lend only 7.5 per cent of capital funds to a mainly gold lending NBFC. RBI Para 11 |
| 40 per cent | All capital market exposure may not cross 40 per cent of net worth. RBI Para 26 |
| 20 per cent | Inside that, direct share and fund holdings may not cross 20 per cent of net worth. RBI Para 26 |
| 25 per cent | Any buy back offer to small investors stays within 25 per cent of owned funds. RBI Para 35 |
What it says
Chapter I. Preliminary
Must know
1. Starts at once
The rules start the moment RBI issues them.
2. Who must follow this
These rules apply to every local area bank.
3. Capital counted from March
Capital funds come from the published accounts as on March 31 of the previous year.
4. New capital counts at once
Fresh capital raised after the balance sheet date may be counted.
5. Quarterly profit does not count
Profit earned during the year does not lift the ceiling.
6. No lending on future capital
The bank may not lend against capital it only hopes to raise later.
7. Sanctioned or outstanding, higher
The bank counts the higher of the sanctioned limit and the amount drawn.
8. Fully drawn term loans
For a fully drawn term loan the bank may count only the amount drawn.
9. The bank decides the group
The bank itself decides who belongs to a group. The test is common management and real control.
Do it
10. An auditor must certify
An outside auditor must certify fresh capital before net worth rises.
Chapter II. Exposure Norms
Must know
1. Fifteen and forty per cent
One borrower may get up to 15 per cent of capital funds. One group may get up to 40 per cent.
BankPulse example. A local area bank lends to one firm and to other firms in the same group. The loan to that one firm may not cross 15 per cent of capital funds. Everything lent to the whole group together may not cross 40 per cent. Both tests apply at the same time.
2. Clearing house is exempt
Clearing work with a recognised clearing house sits outside the 15 per cent cap.
3. Other clearing houses are not
A clearing house that is not recognised stays inside the 15 per cent cap.
4. NBFC lending has a cap
The bank may lend one NBFC up to 10 per cent of capital funds. For an NBFC group the cap is 15 per cent.
5. Gold loan NBFC lower
The bank may lend only 7.5 per cent of capital funds to a mainly gold lending NBFC.
6. Consortium loans are covered
The same limits apply when several banks lend together.
7. Who owns the bill risk
A bill discounted under another bank's letter of credit counts against that bank.
8. Food credit is exempt
Borrowers given food credit limits by RBI itself are outside the ceiling.
9. Government guarantee is exempt
A loan fully guaranteed by the Government of India is outside the ceiling.
10. Loans on own deposits
A loan against the bank's own term deposit is left out where a lien exists.
11. NABARD is exempt
Money lent to NABARD is outside the single and group ceiling.
12. Unrated bonds stay barred
That freedom does not extend to unrated bonds outside the required holdings.
13. Top up loans unsecured
A top up loan against a vehicle is treated as unsecured.
14. Capital market forty per cent
All capital market exposure may not cross 40 per cent of net worth.
15. Direct part twenty per cent
Inside that, direct share and fund holdings may not cross 20 per cent of net worth.
16. Converted shares are exempt
Shares taken in place of a bad loan are outside the capital market ceilings.
17. Investment counted at cost
Direct holdings in shares and funds are counted at what they cost.
18. No safety net promise
The bank may not promise to buy shares back at a price fixed in advance.
19. Buy back stays small
Any buy back offer to small investors stays within 25 per cent of owned funds.
Do it
20. One board policy needed
The board must approve one full policy on this risk.
21. Board fixes sector limits
The board should set its own limits for each sector it lends to.
22. Unsecured consumer credit limits
The board must set a limit for every unsecured consumer loan.
23. A sub-limit for gold NBFCs
The bank must set an inner limit for all gold loan NBFCs together.
24. But report them monthly
Those shares must still be reported to RBI every month and shown in the accounts.
25. A policy for intra day
The board must approve a policy for same day capital market limits.
Background
26. An overall NBFC limit
The bank may also set one limit for all such companies together.
27. Board may go lower
The board is free to set a tighter ceiling than RBI's.
Chapter III. Prudential Limits for Inter-Bank Liabilities (IBL)
1. Deposit side sits elsewhere
Limits on money owed to other banks are in a different rulebook.
Chapter IV. Repeal and other provisions
1. The old rules are gone
All earlier concentration risk instructions for local area 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.
The same subject for other kinds of institution
The same subject for other kinds of institution.
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