Reserve Bank of India (Small Finance Banks – Classification, Valuation and Operation of Investment Portfolio) Directions, 2025 (Updated as on May 18, 2026)
UR
- Applies toSmall finance banks
- StatusIn force
- RBI text changedRBI updated this document on October 01, 2026. BankPulse is re-reading it.
- IssuedNov 28, 2025
- Last amendedSep 22, 2026 · 2 incorporated
- Length70 points in 5 sections · 7 min read
The four dates on this rule
- PublishedNov 28, 2025The day RBI put this document out. This is the same day as the Issued date on this rule.
- Starts to applyNov 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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68 of the 70 points name no product and bind every product. All products.
Numbers to remember
| one month | The rating letter must be under one month old and the rationale under one year. RBI Para 4(6) |
| two months | The half-yearly book review must reach the Board within two months, by end May and end November. RBI Para 14 |
| five per cent | Selling more than five per cent of the opening held to maturity book is significant. RBI Para 33(2) |
| 90 days | A bond or debenture becomes non-performing if interest stays unpaid for over 90 days. RBI Para 97(1) |
| May 18, 2026 | RBI updated these Directions again on May 18, 2026. RBI Para 113 |
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.
Can be read two ways
A point marked this way sits on an RBI paragraph that can honestly be read two ways. Our own sentence takes one of the two. BankPulse does not choose for you: read RBI’s own paragraph, at the number printed on the point, before you act on it.
Two ways — both, or either one. RBI’s paragraph joins two things in the and-or form. One reading: Both of them apply, together. The other: Either one of them, on its own, is enough.
Two ways — firm, or the usual course. RBI’s paragraph softens the duty with a hedging word instead of stating it flat. One reading: It is a firm rule, and only a rare case RBI would accept sits outside it. The other: It is the usual course, and a bank may depart from it for its own recorded reasons.
Chapter I. Preliminary
Must know
1. Rating letter within a month
The rating letter must be under one month old and the rationale under one year.
Do it
2. Investment rules for SFBs
This paper sets how small finance banks must class and value what they hold.
3. Rating letter in the offer
The rating letter and the reasoning should form part of the offer document.
4. Overseas ratings named
For overseas paper the rating must come from the agencies named for capital work.
Background
5. Start date
These Directions came into effect on the day RBI issued them.
6. Who is covered
These Directions apply to every small finance bank.
7. Thin trading is no market
A share barely traded on an exchange is not treated as having an active market.
8. Influence is not control
Significant influence is a say in policy, not control over it.
9. Rating must still stand
On a secondary market buy the rating must be in force and checked in the monthly bulletin.
10. An exchange abroad
Abroad, an exchange means one the local securities regulator recognises.
11. Low coupon bonds defined
A low coupon bond pays little and is redeemed with a large premium at the end.
12. Rated means a live rating
A rated security is one rated by a SEBI registered agency and carrying a valid rating.
13. Inputs nobody can see
Unobservable inputs are used where market prices and curves are not available.
14. Unrated means no rating
An unrated security is one with no current and valid rating.
Chapter II. Role of the Board
Must know
1. Two months to report
The half-yearly book review must reach the Board within two months, by end May and end November.
Do it
2. Board approves the policy
The Board must approve the investment policy.
3. Investment Committee
The Board must set up an Investment Committee to handle all equity and share investments.
4. Board sets the impairment bar
The Board must set the bar for treating an investment in a group firm as impaired.
5. Board owns the risk systems
The Board must see that systems exist to catch and weigh non-SLR investment risk.
6. Non-SLR review each quarter
The Board must look at non-SLR investments at least once a quarter.
7. Board told after a breach
The Board must be told after the total limit for one broker is crossed.
8. Half-yearly portfolio review
The Board must review the whole book twice a year, at 31 March and 30 September.
Background
9. Category moves need Board
Moving an investment between HTM, AFS and FVTPL needs Board approval.
10. HTM sale policy
Selling investments out of the Held to Maturity category needs a Board-approved policy.
Chapter III. General Guidelines
Do it
1. Invest only as told here
Investment work must stay within the terms these Directions set.
2. A full written policy
A full investment policy approved by the Board must be adopted.
BankPulse example. A lender cannot buy securities on the strength of practice alone. It must adopt a comprehensive investment policy, and the Board must approve it. A policy the Board has not seen does not count.
3. Sound practice in dealing
The policy must keep dealing in securities within sound business practice.
4. Limits inside the policy
The policy must set limits for each kind of bond and each issuer.
5. Equity gets its own rules
The policy must set out how equity is bought and how its risk is run.
6. A team for equity research
An equity research team must be built to match the size of the business.
7. Committee decides on equity
An investment committee set by the Board must decide every equity purchase.
8. Same test as a loan
An investment proposal must face the same credit test as a loan proposal.
9. Check the defaulter lists
Defaulter lists from the credit bureaus and CRILC must be checked before buying.
10. Do your own rating
Own credit work must be done even on rated paper; outside ratings are not enough.
11. Track the issuer often
The issuer's health must be tracked each quarter or half year to catch rating drift.
12. Settle as the regulator says
Trades must be settled the way the regulator concerned lays down.
13. Demat holding only
Banks must hold all their investment securities only in demat form.
14. Dealer work in the policy
Where primary dealer work is done in-house, the policy must cover it.
Background
15. Rating gates for bonds
Bond buying needs entry level ratings and limits by industry, maturity and issuer.
16. Harder look at outsiders
Paper issued by a firm that is not a borrower needs a harder look.
Chapter IV. Classification of Investments
Must know
1. Five per cent test
Selling more than five per cent of the opening held to maturity book is significant.
2. Equity cannot be HTM
Equity shares fail the cash flow test and cannot sit in held to maturity.
Do it
3. Three investment categories
Banks must sort every investment into one of three categories: HTM, AFS or FVTPL.
4. Category fixed before buying
The category must be fixed before or at purchase and the choice written down.
5. A trading sub-book
A held for trading sub-book must be made inside fair value through profit.
6. Value the trading book daily
Trading book instruments must be fair valued every day and the change taken to profit.
7. RBI must clear a deviation
Leaving the set list needs a written request to RBI and its clear approval.
8. Write down every deviation
Every departure from the set list must be written down as it happens.
Background
9. Held for Trading placement
Held for Trading is now a sub-category inside Fair Value through Profit and Loss.
10. Repo does not break it
A repo of a security does not clash with holding it to maturity.
11. Two tests for HTM
Held to maturity needs both a plain cash flow and the aim of holding to the end.
12. A put looks like selling
Using a put option before maturity is normally treated as a sale out of the book.
13. Unless the credit turns
A put used after a downgrade or a default does not spoil the holding aim.
14. Two tests for AFS
Available for sale needs both the aim of collecting cash flows and of selling.
15. A one-time equity election
At first entry a one-time choice may put non-trading equity into available for sale.
16. The rest is fair valued
A security that fits neither of the first two books goes to fair value through profit.
17. No legal bar to selling
Only an instrument free to be sold or hedged may go into the trading book.
18. No approval means trading
Where approval is not given, the instrument stays in the trading book.
19. RBI can push it back
RBI may order an instrument moved out of the trading book if the case is weak.
Chapter X. Operational Guidelines
1. Fifteen minutes to report
An over the counter corporate bond trade must be reported within fifteen minutes.
2. Market exposure every meeting
The Audit Committee must review the whole capital market exposure at every meeting.
3. Board hears the market exposure
The Audit Committee must keep the Board informed of the whole capital market exposure.
Chapter XI. Income Recognition, Asset Classification and Provisioning
1. 90-day non-performing test
A bond or debenture becomes non-performing if interest stays unpaid for over 90 days.
BankPulse example. Interest on a debenture falls due on 1 June and is not paid. The holding stays healthy for 90 days. On the 91st day it becomes non-performing.
2. No income on NPIs
Banks cannot book any income on a non-performing investment.
3. Government securities protected
Banks cannot mark Central or State Government securities as non-performing investments.
4. Only if serviced on time
That accrual holds only where the rate is fixed and interest is not in arrears.
5. Broken-period interest
Interest paid to a seller for part of a period is booked as an expense, not added to cost.
Chapter XIII. Repeal and Other Provisions
1. Later update
RBI updated these Directions again on May 18, 2026.
2. Older rules cancelled
This cancels the older RBI rules on how banks classify and value their investment portfolio.
3. Old actions preserved
Actions already taken under the old rules still follow those old rules.
How this rule has changed
The points above are the rule as it stands today, after every change listed here.
Issued on Nov 28, 2025. This is the date RBI put the rule out.
Changed on May 18, 2026.
- Direction start date. These amendment rules apply from the issue date mentioned in this letter.
- Annual IFR check. Banks must check this Investment Fluctuation Reserve minimum each year using portfolio values on the balance sheet date.
- Source of IFR transfer. Banks must move money to Investment Fluctuation Reserve from net profit after all required appropriations.
Changed on Sep 22, 2026.
The same subject for other kinds of institution
The same subject for other kinds of institution.
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