Reserve Bank of India (Small Finance Banks – Concentration Risk Management) Directions, 2025 (Updated as on July 01, 2026)

1. Starts at once

The rules start the moment RBI issues them.

2. Who must follow this

These rules apply to every small finance bank.

3. Capital counted from March

Capital funds come from the published accounts as on March 31 of the previous year.

4. Quarterly profit does not count

Profit earned during the year does not lift the ceiling.

5. No lending on future capital

A bank may not lend against capital it only hopes to raise later.

6. Sanctioned or outstanding, higher

The bank counts the higher of the sanctioned limit and the amount drawn.

7. Fully drawn term loans

For a fully drawn term loan the bank may count only the amount drawn.

8. The bank decides the group

The bank itself decides who belongs to a group. The test is common management and real control.

1. Ten and fifteen per cent

One borrower may get up to 10 per cent of capital funds. One group may get up to 15 per cent.

BankPulse example. A small finance bank lends to one company and to other firms in the same group. The loan to that one company may not cross 10 per cent of the bank's capital funds. Everything lent to the whole group together may not cross 15 per cent. Both tests apply at the same time, so the group room can be full while the single name is not.

2. The limit is per borrower

The ₹25 lakh test is applied borrower by borrower.

3. Clearing house is exempt

Clearing work with a recognised clearing house sits outside the 10 per cent cap.

4. Other clearing houses are not

A clearing house that is not recognised stays inside the 10 per cent cap.

5. 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.

6. Gold loan NBFC lower

The bank may lend only 7.5 per cent of capital funds to a mainly gold lending NBFC.

7. Consortium loans are covered

The same limits apply when several banks lend together.

8. Who owns the bill risk

A bill discounted under another bank's letter of credit counts against that bank.

9. Food credit is exempt

Borrowers given food credit limits by RBI itself are outside the ceiling.

10. Government guarantee is exempt

A loan fully guaranteed by the Government of India is outside the ceiling.

11. Loans on own deposits

A loan against the bank's own term deposit is left out where a lien exists.

12. NABARD is exempt

Money lent to NABARD is outside the single and group ceiling.

13. Top up loans unsecured

A top up loan against a vehicle is treated as unsecured.

14. Overseas arms capped

Credit to Indian joint ventures and subsidiaries abroad stops at 20 per cent of capital funds.

15. No safety net promise

A bank may not promise to buy shares back at a price fixed in advance.

16. Buy back stays small

Any buy back offer to small investors stays within 25 per cent of owned funds.

17. Half the book stays small

At least 50 per cent of the loan book must be loans of ₹25 lakh or less.

18. Board fixes sector limits

The board must set its own limits for each sector, such as textiles or tea.

19. Unsecured consumer credit needs limits

The board must set a limit for every unsecured consumer loan.

20. A sub-limit for gold NBFCs

The bank must set an inner limit for all gold loan NBFCs together.

21. Borrower and obligor same

RBI uses the words borrower and obligor to mean the same thing.

1. Group limits, single entity

One non-financial group company may get five per cent of paid-up capital and reserves.

2. Regulated group firms more

A regulated financial group company may get 10 per cent.

3. Whole group stops at twenty

All group companies together may not cross 20 per cent of paid-up capital and reserves.

4. Nothing to the holding company

A bank under a holding company may not lend to that holding company.

5. A breach stops fresh deals

If a group limit is crossed, the bank may take no further group exposure.

6. Capital is cut for breach

The excess is taken off Common Equity Tier 1 capital until the limit is met again.

7. Penalty for repeat breaches

Repeated breaches can bring an RBI penalty on the bank.

8. One policy for group deals

The board must approve a full policy on dealings with group companies.

9. Review the policy yearly

That policy must be looked at again at least once a year.

10. No cross default clause

The bank may not sign a clause that turns a group default into its own.

11. No trading bad assets inside

The bank may not buy or sell bad loans with its own group.

12. Report big group deals

Group deals above ₹10 crore funded, or ₹25 crore non-funded, must be listed for RBI.

1. Country limit caps at capital

No single country may be given more than the bank's own regulatory capital. Only the lowest risk group is left out.

2. Indirect country risk counts

Country risk must be watched once net funded exposure reaches one per cent of total assets.

3. Country risk counted net

Country exposure is counted after collateral, guarantees and insurance are taken off.

4. Country limits reviewed yearly

The board must look at country limits again at least once a year.

1. The old rules are gone

All earlier concentration risk instructions for small finance 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.