Reserve Bank of India (Small Finance Banks – Governance) 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 59 points against RBI's new text on 2 October 2026. 56 stand. 3 are marked below and are being re-read.
- IssuedNov 28, 2025
- Last amendedJul 30, 2026 · 2 incorporated
- Length59 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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57 of the 59 points name no product and bind every product. All products.
Numbers to remember
| 35 years | A non executive director must be at least 35 years old and may not continue past 75. RBI Para 9 |
| 51 per cent | At least 51 per cent of the board must have special knowledge in fields like banking, law or agriculture. RBI Para 9(2) |
| eight years | A non executive director serves at most eight years in total on the board. RBI Para 9(2) |
| three years | After eight years the person may return only after a gap of three years. RBI Para 9(2) |
| 15 years | Nobody holds the chief executive or whole time director post beyond 15 years. RBI Para 13 |
| 12 years | A promoter or major shareholder in these posts gets 12 years, or 15 only at RBI's sole discretion. RBI Para 15 |
| ₹30 lakh | A non executive director's fixed pay cannot exceed ₹30 lakh a year, besides sitting fees. RBI Para 53 |
| 50 per cent | For top executives at least 50 per cent of pay must be variable, tied to measured performance. RBI Para 55(3) |
| 300 per cent | Total variable pay is capped at 300 per cent of fixed pay. RBI Para 55(4) |
| 60 per cent | At least 60 per cent of an executive's variable pay sits under deferral. RBI Para 55(6) |
| four months | A new chief executive proposal carries at least two names and reaches RBI four months before the term ends. RBI Para 57 |
| six months | A re-appointment proposal for the chief executive reaches RBI at least six months before the term ends. RBI Para 57 |
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.
Chapter I. Preliminary
1. In force at once
These Directions came into force with immediate effect.
2. Who is covered
These Directions apply to small finance banks.
3. Some banks partly exempt
Non scheduled small finance banks are exempt from the chief risk officer and chief financial officer chapters.
Chapter II. Constitution of Board and Appointment of Directors
Must know
1. Age limits for directors
A non executive director must be at least 35 years old and may not continue past 75.
2. Most seats need experts
At least 51 per cent of the board must have special knowledge in fields like banking, law or agriculture.
3. No lawmakers on board
A member of Parliament or a state legislature cannot be a director.
4. Eight years, then a break
A non executive director serves at most eight years in total on the board.
5. Three years before returning
After eight years the person may return only after a gap of three years.
6. Fifteen years at the top
Nobody holds the chief executive or whole time director post beyond 15 years.
7. A clean cooling period
During the cooling period the person cannot be associated with the bank or its group in any way.
8. Promoters get twelve years
A promoter or major shareholder in these posts gets 12 years, or 15 only at RBI's sole discretion.
Do it
9. Fit and proper first
Before a director is appointed, the bank must check their skills, record and integrity.
10. Two rural voices
At least two directors must know agriculture and rural economy, co-operation or small scale industry.
11. Chair and chief separated
The bank must have a part time chairman and a separate chief executive who runs day to day management.
12. Two whole time directors
The board must include at least two whole time directors, counting the chief executive.
Background
13. The committee screens them
The pay and nominations committee reads each director's declaration closely before it is accepted.
14. Nobody vets themselves
Due diligence on committee members is done by the board itself; interested members stay out.
15. One family seat only
As a desirable practice, not more than one member of a family or close associate sits on the board.
16. A yearly covenant
Every director signs a deed of covenant and refreshes their declaration each year as on March 31.
17. Seventy is the ceiling
No one continues as chief executive or whole time director past the age of 70.
Chapter IV. Role of the Board and Individual Directors
1. Directors cannot command staff
A non executive director gives no orders to employees; everything routes through the chief executive.
2. No sponsoring loans
A director may not sponsor any loan proposal or push a branch manager to sanction facilities.
3. No staff favours
A director may not push individual cases of recruitment, transfer or promotion.
4. Interested directors step back
A director interested in a proposal must disclose it and stay out of the vote.
5. Four duties of the board
The board watches risk, keeps the controls honest, ensures expert management and guards all stakeholders.
Chapter V. Board Structure and Practices
1. An independent chair
The chair of the board must be an independent director, and so must whoever stands in.
2. Quorum with independents
Board meetings need one third of the board or three directors, and half of those attending must be independent.
3. Seven themes on the agenda
The board agenda must cover seven themes: strategy, risk, reports, compliance, customers, inclusion and people.
4. Dissent is recorded
Board minutes must record observations and dissents of individual directors and go back to them for confirmation.
5. RBI circulars reach the board
Copies of RBI and government directives go before the board with proper background.
Chapter VI. Committees of the Board
Must know
1. The chair stays out
The chair of the board may not sit on the audit committee.
2. Audit chair sanctions nothing
The audit committee's chair may not sit on any committee that sanctions credit.
Do it
3. Quarterly audit meetings
The audit committee meets at least once a quarter; two thirds of those attending must be independent.
4. A risk committee too
The board must set up a risk committee. Most of its members are non executive directors.
Background
5. An audit committee of outsiders
The audit committee consists only of non executive directors, with at least one finance expert.
6. Risk chair stands alone
The risk committee is chaired by an independent director who chairs neither the board nor any other committee.
Chapter VII. Appointment of Chief Risk Officer
1. No dual hats
The chief risk officer may not also be chief executive, operating, financial or internal audit chief.
2. Removal is reported
Removing the chief risk officer early needs board approval and a report to RBI's supervision department.
3. A chief risk officer
A board approved policy defines the chief risk officer's role, and safeguards protect their independence.
4. No business targets
The chief risk officer reports to the chief executive or the risk committee and carries no business targets.
Chapter VIII. Appointment of Chief Financial Officer and Chief Technical Officer
1. A qualified finance chief
The chief financial officer must be a qualified chartered accountant.
Chapter IX. Remuneration of NEDs, WTDs, MD&CEO, Material Risk Takers, and Control Function staff
Must know
1. Directors' pay is capped
A non executive director's fixed pay cannot exceed ₹30 lakh a year, besides sitting fees.
BankPulse example. A non-executive director other than the Chair may be paid a fixed sum of up to ₹30 lakh a year. A board that votes ₹35 lakh has gone past that. The Chair sits outside this paragraph.
2. Half the pay must vary
For top executives at least 50 per cent of pay must be variable, tied to measured performance.
BankPulse example. At least 50 per cent of the pay must be variable. Suppose total pay is ₹80 lakh. Then ₹40 lakh of it or more varies with performance.
3. A cap on variable pay
Total variable pay is capped at 300 per cent of fixed pay.
BankPulse example. Variable pay is limited to a maximum of 300 per cent of fixed pay. Suppose fixed pay is ₹40 lakh. Then variable pay stops at ₹1.2 crore.
4. Most of it waits
At least 60 per cent of an executive's variable pay sits under deferral.
BankPulse example. At least 60 per cent of variable pay is deferred. Suppose variable pay is ₹50 lakh. Then ₹30 lakh waits, and ₹20 lakh may be paid now.
5. Three years of waiting
The deferral period is at least three years.
6. No hedging pay
Employees may not insure or hedge their pay to undo its risk alignment.
Do it
7. Naming the risk takers
The bank must identify material risk takers using set qualitative and quantitative tests.
Background
8. Pay can be taken back
Deferred pay faces malus and clawback if the bank or the line of business performs badly.
9. Bad-loan gaps freeze pay
If the bank under reports bad loans beyond the disclosure line, unvested variable pay is withheld.
10. No guaranteed bonus
Guaranteed bonus is allowed only as a joining bonus, in the first year, and only in share linked form.
11. Control staff paid fixed
Risk and audit staff are paid mostly fixed, independent of the businesses they oversee.
Chapter X. Regulatory Approvals and Reporting
1. Two names, four months
A new chief executive proposal carries at least two names and reaches RBI four months before the term ends.
2. Six months for renewal
A re-appointment proposal for the chief executive reaches RBI at least six months before the term ends.
3. Board changes reported
Every change in board composition is reported to RBI as and when it happens.
4. RBI approves the top job
Appointing the chairman, chief executive or a whole time director needs RBI's prior approval through PRAVAAH.
5. Pay needs approval
Executive pay needs RBI approval under the banking law. The test is these very guidelines.
Chapter XI. Repeal and other provisions
1. Old guidance repealed
The earlier governance circulars for small finance banks stand repealed.
2. Old actions stay governed
Action already taken under the old rules stays governed by them.
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 Jul 14, 2026. Takes effect From October 01, 2026. Exceptions and conditions are stated in the amendment..
- Delete certain paragraphs. Paragraph 21 of Chapter IV and some Chapter V paragraphs are removed from the old Directions.
- Board policy approval. Appendix I will say which policies need Board approval and which approvals can be passed down.
- Delegating policy review. Board committees may review Board-approved policies, but the Board must itself approve important changes.
- Non‑policy Board matters. Appendix II A will list non-policy items that must go to the Board for approval, review or information.
Changed on Jul 30, 2026. Takes effect From April 1, 2027..
- Share linked pay norms. Each bank must set its own rules for giving share linked pay, matching all law and its pay policy.
- Fair value at grant. Banks must value share linked pay on grant date using the Black Scholes model.
- Expense recognition timing. Banks must book the fair value cost from the first approved accounting period onward.
- Effective date. These changes apply from April 1, 2027 onward.
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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