Reserve Bank of India (Small Finance Banks – Transfer and Distribution of Credit Risk) Directions, 2025
UR
- Applies toSmall finance banks
- StatusIn force
- RBI text changedRBI updated this document on October 01, 2026. BankPulse is re-reading it. BankPulse checked all 51 points on this page against RBI's new text on 6 October 2026. Every quoted line is still in RBI's text.
- IssuedNov 28, 2025
- Amendmentsnone tracked
- Length51 points in 5 sections · 6 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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Numbers to remember
| 10 per cent | Loan by loan checks may cover only one third of a portfolio. In that case the seller must retain 10 per cent of the interest. RBI Para 40 |
| 2 years | Loans with tenor up to 2 years need three months of holding; longer loans need six months. RBI Para 43(1) |
| 90 days | The exemption holds only when the receivable has not more than 90 days left to run at transfer. RBI Para 43(2) |
| 30 days | A warranty replacement of transferred loans must happen within 30 days, on the original terms. RBI Para 52(4) |
| ₹100 crore | A stressed exposure of ₹100 crore or more needs two external valuation reports, at the seller's cost. RBI Para 57 |
| 12 months | After selling a stressed loan the bank takes no fresh exposure to that borrower for at least 12 months. RBI Para 61 |
| 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 79(2) |
| five crore | Borrowers with sanctioned limits of rupees five crore and above declare their credit lines from other lenders. RBI Para 85(1) |
| 40 per cent | A risk sharing participation may cover at most 40 per cent of the outstanding, only in accounts not in default. RBI Para 88 |
| 91 days | A risk sharing participation runs at least 91 days and at most 180 days, and cannot be transferred. RBI Para 89 |
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.
Must know
1. No buying stressed loans
The bank may not purchase stressed loans at all.
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. No buying it back
A seller cannot re-acquire a transferred loan except under an approved resolution plan.
5. Borrowers' rights stand
The transfer must not override borrowers' rights, and needed consents must be in hand.
6. RBI told of make-goods
Every replacement of a transferred loan, or damages paid, is reported to RBI's supervision department.
7. No mixing of money
A servicing bank holds the loan cash flows in trust and never mixes them with its own.
8. Checks cannot be outsourced
The buyer's own staff must do the due diligence, with the same rigour as for its own loans.
9. A third checked, tenth kept
Loan by loan checks may cover only one third of a portfolio. In that case the seller must retain 10 per cent of the interest.
10. Hold before you sell
Loans with tenor up to 2 years need three months of holding; longer loans need six months.
11. Ninety days at most
The exemption holds only when the receivable has not more than 90 days left to run at transfer.
12. Thirty days to replace
A warranty replacement of transferred loans must happen within 30 days, on the original terms.
13. 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.
14. Open challenge, big sales
A bilateral stressed sale of ₹100 crore or more must face a public counter bidding round.
15. Twelve months of distance
After selling a stressed loan the bank takes no fresh exposure to that borrower for at least 12 months.
16. 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.
17. Declarations above five crore
Borrowers with sanctioned limits of rupees five crore and above declare their credit lines from other lenders.
18. Risk sharing capped
A risk sharing participation may cover at most 40 per cent of the outstanding, only in accounts not in default.
19. Between 91 and 180 days
A risk sharing participation runs at least 91 days and at most 180 days, and cannot be transferred.
20. Ninety days without risk
A participation without risk sharing runs up to 90 days, repaid with interest even if the loan defaults.
Do it
1. Ownership must move
Outside loan participation, legal ownership must transfer to the buyer to the extent of 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. Same tests for all loans
The seller must underwrite transferred loans by the same standards as loans it keeps.
5. Watch what you bought
The buyer must monitor acquired loans continuously, with periodic stress tests and sensitivity analyses.
Background
1. In force on posting
These directions took effect the day they were placed on RBI's website.
2. Who is covered
These directions apply to small finance banks.
3. Buying only for priority
The bank may buy only standard loan portfolios, from banks and finance companies, to meet priority sector sub targets.
4. One rulebook for transfers
No loan transfer or acquisition may happen outside what this framework permits.
5. A board policy first
A board approved policy sets the standards for due diligence, valuation, systems and oversight.
6. The buyer stands free
The buyer gets an unrestricted right to sell on, with no recourse to the seller beyond what is permitted.
7. No promise to refund
The seller owes no re-purchase, funding or substitution, except for breach of stated warranties.
8. 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.
9. Servicing at arm's length
The seller may service the sold loans only under strict written, arm's length conditions with no hidden support.
10. Cash on the day itself
Transfers are on cash basis only, with the price received not later than the time of transfer.
11. The clock starts at registry
The holding period counts from registering the security with the central registry, CERSAI.
12. Factoring bills exempt
Short factoring receivables may transfer without the holding period, after proper appraisal of the drawee.
13. Paper profit is no capital
Unrealised profit on a transfer is deducted from core capital until the loans mature.
14. Accounts borrower by borrower
Both sides keep borrower wise accounts, so exposure runs to each obligor in the pool.
15. A rating is no shortcut
An external rating of the pool comes after the buyer's own checks and can never replace them.
16. Stressed sales, two ways only
Stressed loans move only by assignment or novation; loan participation is not permitted for them.
17. Top-down identification
The head office actively identifies stressed loans for transfer, and the board reviews those above a threshold.
18. A floor under the discount
The internal valuation's discount rate has a floor: the contracted interest rate charged on the loan.
19. Selling below value hurts now
A sale below net book value is debited to that year's profit and loss account.
20. Even fraud loans move
Even fraud classified loans may transfer to asset reconstruction companies.
21. Unredeemed receipts are losses
Security receipts still unredeemed at the end of the resolution period are treated as loss assets, fully provided.
22. Sharing borrower information
Lenders in consortium arrangements exchange borrower conduct information at least quarterly.
23. Takeovers need a policy
Taking over a borrower's account from another bank follows a board approved policy with staff accountability.
24. Ask before you take over
The taking bank first obtains the borrower's credit information from the current bank in the set format.
25. Old guidance repealed
The earlier credit risk transfer guidance for small finance banks stands repealed.
26. 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 small finance banks
RBI compliance officer and compliance function rules for small finance banks 2026
RBI credit bureau reporting rules for small finance banks 2025
RBI credit card and debit card rules for small finance banks 2025
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