RBI Notifies RBI (Commercial Banks – Credit Risk Management) Amendment Directions, 2026

RBI, through notification dated 05.01.2026, notified the RBI (Commercial Banks – Credit Risk Management) Amendment Directions, 2026 ("Credit RM Amendment Directions")¹ to amend the RBI (Commercial Banks – Credit Risk Management) Directions, 2025 ("Credit RM Directions").

The salient features of the Credit RM Amendment Directions are as follows:

1. Amendments to definitions section under the Credit RM Directions, as follows:
   1. "Committee on lending to related parties" means a committee of the Board of the bank entrusted with sanctioning of loans to related parties. Banks may also identify any existing committee, other than the Audit Committee, for this purpose.
   2. "Lending" in the context of a "related party" means extending funded or non-fund-based credit facilities to related parties. Investments in debt instruments of related parties are covered, while equity investments are excluded.
   3. "Reciprocally Related Person" means an individual who is: (i) a director (excluding independent director or nominee director appointed by the Government or RBI or a statutory body) of another commercial bank, or an All India Financial Institution, or a scheduled cooperative bank, or a subsidiary of a commercial bank; or (ii) a trustee of a mutual fund or an alternate investment fund established by any of the aforesaid regulated entities; or (iii) a relative of such director or trustee.
   4. "Related Party" with respect to a bank means a related person, a reciprocally related person, or an entity where such person: (i) is a partner, manager, key managerial personnel, director or promoter; or (ii) is a shareholder with more than ten per cent of paid-up equity share capital; or (iii) has control, singly or jointly; or (iv) controls more than twenty per cent of voting rights through ownership, voting agreement or any other arrangement; or (v) has the power to nominate a director to the Board (power arising exclusively from a lending or financing arrangement); or (vi) the entity is accustomed to act on the advice, direction or instruction (given in professional capacity) of such person; or (vii) is a guarantor or surety; or (viii) is a trustee, author or beneficiary in case of a private trust; or (ix) is related as a subsidiary, parent, holding company, associate or joint venture. Government of India or State Government-owned or controlled entities shall not be treated as related parties to a government owned bank only due to common government ownership or control.
   5. "Related Person" with respect to a bank means a person and the relatives of such person, where the person: (i) is a promoter, director or key managerial personnel of the bank; or (ii) owns more than five per cent of paid-up equity share capital of the bank or can exercise more than five per cent of voting rights, singly or jointly; or (iii) can nominate a director to the Board through an agreement with the bank; or (iv) is in control of the bank, singly or jointly.
   6. "Specified employees" mean all employees of a bank who are positioned up to two levels below the Board and any employee designated as such as per the bank's policy.
2. Coverage of lending to related parties under credit risk policy: The comprehensive Board approved policy on Credit Risk Management shall also cover aspects related to lending to related parties.
3. A new Section B.1 dealing with lending to related parties has been inserted to provide the following:
   1. General principles for lending to related parties: Banks shall follow prudent risk management principles for lending to related parties, wherever permitted, and shall ensure effective implementation of their policy on lending to related parties. The credit policy shall contain specific provisions governing such lending and prescribe additional safeguards like provisions relating to lending to 'specified employees' and their relatives.
   2. Regulatory prohibitions: Restrictions stipulated under the Credit RM Directions shall apply to loans and advances to spouse and minor or dependent children of directors. Banks may grant loans to spouses of directors having independent income from employment or profession, based on credit assessment and on commercial terms in line with the arms-length principle.
   3. Materiality threshold:

1. Loans to related parties, shall be subject to materiality thresholds under the credit policy, which shall not exceed as follows

4. Recusal of interested persons: Directors, key managerial personnel, and 'specified employees' shall recuse themselves from deliberations and decisions on loan proposals, contracts, settlements, write-offs, waivers, enforcement of security, and resolution plans.
5. Monitoring and reporting: Banks shall maintain and periodically update the list of related persons, related parties, and loans sanctioned to them. Credit facilities to 'specified employees' and their relatives shall be reported to the Board annually. Internal auditors shall conduct periodic reviews at quarterly or shorter intervals to verify compliance.

The Credit RM Amendment Directions shall come into force from 01.04.2026 or any earlier date as per the discretion of the respective Banks.

RBI has notified similar amendments to the Credit RM Directions applicable to Urban Co-operative Banks, Small Finance Banks, Rural Co-operative Banks, Regional Rural Banks, Non-Banking Financial Companies, Local Area Banks and All India Financial Institutions on 05.01.2026.

Footnote

1 RBI (Commercial Banks – Credit Risk Management) Amendment Directions, 2026.

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