Reserve Bank of India (Local Area Banks – Credit Risk Management) Directions, 2025 (Updated as on July 01, 2026)
UR
- Applies toLocal area banks
- StatusIn force
- IssuedNovember 28, 2025
- Last amendedApr 29, 2026 · 3 incorporated
- Length27 points in 5 sections · 3 min read
The four dates on this rule
- PublishedNovember 28, 2025The day RBI put this document out. This is the same day as the Issued date on this rule.
- Starts to applyNovember 28, 2025The day this rule starts to apply, as RBI's own text states it.
- Time to get readyNoneIt starts to apply on the day it was published.
- 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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What it says
How firm is each point
Stated by RBI — RBI’s own paragraph says this. We have only made it plainer.
Our reading — BankPulse read RBI’s paragraph and shortened it. The paragraph is the authority, not this line.
Needs judgement — RBI leaves this to the bank to settle, so nobody can give you a fixed number here.
Opening paragraphs
1. Latest update
The document was last updated on July 1, 2026.
2. Date of issue
RBI issued these Directions on November 28, 2025.
3. Credit risk significance
Local Area Banks face several risks, and credit risk is one of the most significant among them.
4. Purpose
RBI issues this rulebook so Local Area Banks manage credit risk consistently, since credit risk is one of their biggest risks.
Chapter I. Preliminary
1. Start date
These Directions started working immediately once 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.
2. Who is covered
These Directions apply only to Local Area Banks, called banks in this document.
Chapter II. Board Approved Policies
1. Board-approved credit policy
A bank's Board must approve a full policy on credit risk management.
Chapter III. Statutory Restrictions
1. Own-share lending ban
A bank cannot grant loans or advances against the security of its own shares.
2. No loans to directors
A bank cannot commit to granting loans or advances to its own directors or linked firms.
Chapter IIIA. Regulatory Restrictions
1. Related-party materiality cap
Loans to related parties need a materiality threshold in the credit policy, capped at 10 lakh rupees.
BankPulse example. The credit policy must set a materiality threshold for loans to related parties. It may not be higher than ₹10 lakh. A policy naming ₹15 lakh would be outside the rule.
2. Board approval threshold
Loans above the materiality threshold need approval from the Board or the Committee on Lending to Related Parties.
3. Recusal rule
Directors and key staff must recuse themselves from decisions on loans involving themselves or their related parties.
4. Quarterly internal audit
Internal auditors must review related-party loans at least once every quarter.
5. Penalties for breach
Breaking or dodging these rules can bring monetary penalties, forced provisioning, or forensic audits.
Chapter IV. Unhedged Foreign Currency Exposure (UFCE)
1. Unhedged forex exposure
Banks must assess unhedged foreign currency exposure of borrowers and hold extra provisioning and capital against it.
2. 75% EBID trigger
Borrowers whose potential forex loss tops 75% of EBID trigger 80 basis points extra provisioning and a higher risk weight.
BankPulse example. A borrower's likely loss on foreign exchange comes to 80 per cent of earnings before interest and depreciation. That is more than 75 per cent. So the bank adds 80 basis points of provisioning and raises the risk weight by 25 percentage points.
Chapter V. Legal Entity Identifier (LEI) for Borrowers
1. LEI code requirement
Non-individual borrowers with 5 crore rupees or more exposure must get a Legal Entity Identifier code.
2. No LEI, no loan
Borrowers who fail to get an LEI code cannot get a new loan or a renewal.
Chapter VI. Valuation of Properties - Empanelment of Valuers
1. Valuer independence
Property valuers must have no direct or indirect interest in the property they value.
2. Dual valuation rule
A bank must get at least two independent valuation reports for properties worth 50 crore rupees or more.
Chapter VII. Filing of Security Interest relating to Immovable (other than equitable mortgage), Movable, and Intangible Assets in CERSAI
1. CERSAI filing duty
Banks must keep filing every security interest transaction with the CERSAI registry on an ongoing basis.
Chapter VIIA. Maintenance of Cash Credit Accounts, Current Accounts and Overdraft Accounts by Banks
1. Current accounts of large borrowers
Keeping the account needs a 10 per cent share of the borrower's banking-system exposure. This can be the total exposure or the fund-based exposure alone.
BankPulse example. A large borrower owes the banking system 500 crore rupees in all. A bank whose share of that exposure is 50 crore rupees, which is 10 per cent, may keep the borrower's current or overdraft account; one whose share is 40 crore rupees may not.
2. Small-exposure current accounts
A bank can freely run current or overdraft accounts if banking-system exposure to the customer stays under 10 crore rupees.
BankPulse example. A customer's borrowing across the banking system is ₹6 crore. That is less than ₹10 crore, so any bank may run its current account without restriction. At ₹12 crore the restrictions apply.
3. Two-day sweep rule
Money reaching a collection account must move to the borrower's designated account within two working days.
4. Half-yearly account checks
Banks must check compliance on these accounts at least once every half year.
Chapter VIII. Repeal and other provisions
1. Older rules repealed
This document repeals all earlier RBI instructions on credit risk management for Local Area Banks.
2. Old actions preserved
Anything already done under the repealed rules stays governed by those old provisions.
How this rule has changed
The points above are the rule as it stands today, after every change listed here.
Issued on November 28, 2025. This is the date RBI put the rule out.
Changed on Dec 11, 2025.
- CC facility flexibility. Banks may grant cash credit limits as per customer need, with no extra limits from this new chapter.
- Small exposure current accounts. Banks may freely open and run current or overdraft accounts if total banking system exposure is below ₹10 crore.
- Exposure meaning. Exposure here means total sanctioned fund and non-fund credit limits taken by the borrower from all banks.
- Non-eligible banks role. A bank that does not meet the share condition may only run collection accounts for that borrower.
Changed on Jan 05, 2026.
- Board credit policy. Each bank must have a full Board approved policy on credit risk, covering the areas named in this paragraph.
- Policy must cover parties. The credit risk policy must include rules for loans to related parties, unhedged foreign currency, and property valuation.
- Board owns party policy. The Board must make sure there are proper systems to apply the bank's lending to related parties policy.
- Policy for related parties. The bank's credit policy must have clear rules for lending to related parties, as per these Directions.
Changed on Apr 29, 2026.
- Calamity impact in credit. When you rate a borrower, you must also think how calamities may affect the borrower's ability to pay.
- Start date. This amendment starts applying from July 1, 2026.
The same subject for other kinds of institution
The same subject for other kinds of institution.
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