Reserve Bank of India (Commercial Banks – Credit Risk Management) Directions, 2025 (Updated as on July 01, 2026)

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RBI/DOR/2025-26/157 DOR.CRE.REC.76/07-02-001/2025-26 November 28, 2025 Previous Versions Reserve Bank of India (Commercial Banks – Credit Risk Management) Directions, 2025 (Updated as on July 01, 2026) Table of Contents Chapter I - Preliminary Chapter II - Board Approved Policies Chapter III - Credit Risk Evaluation Chapter IV - Statutory Restrictions Chapter V - Regulatory Restrictions Chapter VI - Country Risk Management Chapter VII - Unhedged Foreign Currency Exposure (UFCE) Chapter VIII - Legal Entity Identifier (LEI) for Borrowers Chapter IX - Valuation of Properties - Empanelment of Valuers Chapter X - Filing of Security Interest relating to Immovable (other than equitable mortgage), Movable, and Intangible Assets in CERSAI Chapter XI - [Deleted] Chapter XIA - Maintenance of Cash Credit Accounts, Current Accounts and Overdraft Accounts by Banks Chapter XII - Loan System for Delivery of Bank Credit Chapter XIII - Repeal and other provisions Annex I Annex II Annex III Introduction Commercial Banks (CBs), in the course of financial intermediation, are exposed to various financial and non-financial risks, of which credit risk is the one of the most significant risks. If not managed effectively, credit risk may have ramifications for a range of other risk categories too. As credit exposures of CBs encompass varied sectors, borrower types and products with their own idiosyncratic complexities as well as systemic implications due to interconnectedness among themselves, credit risk management of CBs involve a range of prudential tools, including statutory and regulatory restrictions / prohibitions on certain activities. Recognising this, the Reserve Bank has, from time to time, issued guidelines to strengthen credit risk management practices. Accordingly, in exercise of the powers conferred by Sections 20, 21 and 35A of the Banking Regulation Act, 1949 and all other provisions / laws enabling the Reserve Bank of India (hereinafter called the Reserve Bank) in this regard, Reserve Bank being satisfied that it is necessary and expedient in the public interest so to do, hereby issues these Directions hereinafter specified. Chapter I - Preliminary A. Short title and Commencement 1. These Directions shall be called the Reserve Bank of India (Commercial Banks – Credit Risk Management) Directions, 2025. 2. These Directions shall come into effect immediately upon issuance. B. Applicability 3. These Directions shall be applicable to commercial banks (hereinafter collectively referred to as 'banks' and individually as a 'bank'). For the purpose of these Directions, ‘Commercial Banks’ shall mean banking companies (other than Small Finance Banks, Payment Banks, and Local Area Banks), corresponding new banks, and the State Bank of India, as defined respectively under clauses (c), (da), and (nc) of Section 5 of the Banking Regulation Act, 1949. C. Definitions 4. (1) In these Directions, unless the context otherwise requires, (i) ‘Bank Guarantee’ shall mean financial and performance guarantees issued by banks on behalf of their clients. A financial guarantee assures payment of money in the event of non-fulfilment of contractual obligations by the client. A performance guarantee provides assurance of compensation if there is delayed or inadequate performance on a contract. A deferred payment guarantee assures payment of instalments due to a supplier of goods. (ii) ‘Bills Purchased and Discounted’ shall mean negotiable instruments that give the holder the right to receive stated fixed sums on demand or at a fixed or determinable future time. When a bank negotiates a bill payable on demand (sight bill) and provides funds to the holder, at a fee / interest, the facility is referred to as bill purchase. When a bank negotiates bill payable after a usance i.e., at a fixed or determinable future time (usance bill) and provides funds to the holder, at a discount, the facility is referred to as bill discounting. Bills purchased and discounted can be Inland Bills and Foreign Bills. Inland Bills are Bills of Exchange drawn in India and paid in India to a person in India. (iii) 'Cash credit (CC)’ shall mean a facility, under which a customer is allowed an advance up to the credit limit against the security by way of hypothecation / pledge of goods, book debts, standing crops, etc. The facility is a running account and ’Drawing Power – DP’ is periodically determined with reference to the value of the eligible current assets. The outstanding amount is repayable on demand. 1 [(iiia) ‘Committee on lending to related parties’ shall mean 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. (iiib) ‘Contract or arrangement’ shall have the same meaning as specified in Section 188(1)(a) to (g) of the Companies Act, 2013. (iiic) ‘Control’ shall have the same meaning as assigned to it under Section 2(27) of the Companies Act, 2013.] (iv) ’Current Account’ shall mean a form of demand deposit account wherefrom withdrawals are allowed any number of times depending upon the balance in the account or up to a particular agreed amount and shall also be deemed to include other deposit accounts which are neither Savings nor Term deposit account. (v) ‘Demand loans’ shall mean all loans repayable on demand (such as cash credit, overdraft, bills purchased and discounted, etc.) and short-term loans with maturity up to one year, whether secured or unsecured, are considered demand loans. 2 [(va) ‘Director of a bank’ shall have the same meaning as defined in Explanation (b) to Section 20 of the Banking Regulation Act 1949 and would include a nominee director and an independent director.] (vi) ‘Earnings before Interest and Depreciation (EBID)’ shall have the same meaning as defined for computation of Debt Service Coverage Ratio (DSCR), i.e., EBID = Profit After Tax + Depreciation + Interest on debt + Lease Rentals, if any. (vii) ‘Entity’ in the context of ‘Unhedged Foreign Currency Exposure’ prescribed in Chapter-VII of these Directions shall mean a counterparty to which a bank has exposure in any currency. Explanation: Exposure shall mean all fund-based and non-fund-based exposures. 3 [(viia) ‘Entity’ in the context of a ‘related party’ prescribed in Chapter V shall mean a ‘person’ other than an individual and a Hindu Undivided Family (HUF).] (viii) ‘Financial hedge’ shall mean hedging through a derivative contract with a financial institution. Financial hedge shall be considered only where the entity has documented the purpose and the strategy for hedging at inception of the derivative contract and assessed its effectiveness as a hedging instrument at periodic intervals. Note: For the purpose of assessing the effectiveness of hedge, guidance may be taken from the applicable accounting standards and the relevant guidance notes of the Institute of Chartered Accountants of India on the matter. (ix) ‘Foreign Currency Exposure (FCE)’ of an entity shall mean the gross sum of all items on the entity’s balance sheet that have impact on its profit and loss account due to movement in foreign exchange rates. 4 [(ixa) ‘Key Managerial Personnel (KMP)’ of a bank shall have the same meaning as defined in Section 2(51) of the Companies Act, 2013. (ixb) ‘Lending’ in the context of a ‘related party’ shall mean extending funded or/ and non-fund-based credit facilities to related parties. While investments in debt instruments of related parties shall be covered for this purpose, equity investments shall be excluded.] (x) ‘Letter of Credit (LC)’ shall mean any arrangement how so ever named or described, that is irrevocable and thereby constitutes a definite undertaking of the issuing bank to honour a complying presentation. An LC confirmed by a bank based and operating in another country is payable by the confirming bank. (xi) ‘Major shareholder’ shall mean a person holding 10 per cent or more of the paid-up share capital or ₹5 crore in paid-up shares, whichever is less. (xii) ‘Natural hedge’ shall mean a hedge arising out of the operations of the company when cash flows offset the risk arising out of the Foreign Currency Exposure (FCE). Explanation: An exposure shall be considered as naturally hedged only if the offsetting exposure has the maturity / cash flow within the same accounting year. For instance, export revenues (booked as receivable) may offset the exchange risk arising out of repayment obligations of an external commercial borrowing if both the exposures have cash flows / maturity within the same accounting year. (xiii) ‘Overdraft (OD)’ shall mean a facility, under which a customer is allowed to draw an agreed sum (credit limit) in excess of credit balance in their account. The overdraft facility may be secured (against fixed / term deposits and other securities, like small saving instruments, surrender value of insurance policies, etc.) or clean (i.e. without any security). The overdraft facility might be granted on their current account, savings deposits account or temporary overdraft on credit accounts. 5 [(xiiia) ‘Person’ shall have the same meaning as assigned to it under Section 3(23) of Part I of Insolvency and Bankruptcy Code (IBC), 2016.] (xiv) 6 [‘Personal Loan’ shall have the same meaning as defined under Banking Statistics (Harmonised Definitions) .] 7 [(xiva) ‘Promoter’ shall have the same meaning as assigned to it under Section 2(69) of the Companies Act, 2013. (xivb) ‘Reciprocally Related Person’ means an individual who is either (i) a director (excluding independent director / Nominee director appointed by the Government or RBI or a statutory body) of another commercial bank, or an AIFI, 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 a director or a trustee. (xivc) ‘Related Party’ with respect to a bank shall mean a related person, a reciprocally related person, or any of the following entities: (a) where a related person or a reciprocally related person is a partner, manager, KMP, director or a promoter; or (b) where a related person or a reciprocally related person is a shareholder with more than ten per cent of paid-up equity share capital; or (c) where a related person or a reciprocally related person is having control, whether singly or jointly with another person; or (d) where a related person or a reciprocally related person controls more than twenty per cent of voting rights on account of ownership or through a voting agreement or through any other arrangement; or (e) where a related person or a reciprocally related person has the power to nominate a director to its Board; or (f) which is accustomed to act on the advice, direction, or instruction of a related person or reciprocally related person; or (g) where a related person or a reciprocally related person is a guarantor or a surety; or (h) where a related person or a reciprocally related person is a trustee or an author or a beneficiary and where the entity is in the form of a private trust. (i) which is related to the related person or a reciprocally related person as a subsidiary or a parent company or a holding company or an associate or a joint venture. Provided that, nothing in sub-clause (e) above shall apply in cases where the authority to nominate a director arises exclusively from a lending or financing arrangement. Provided further that, nothing in sub-clause (f) above shall apply to the advice, directions or instructions given in a professional capacity. Provided further that, Government of India / State Government-owned or controlled entities shall not be treated as related parties to a government-owned bank just by virtue of the fact that the Government has the common ownership or control of such entities. (xivd) ‘Related Person’ with respect to a bank shall mean a person, and the relatives of such a person, where the person: (a) is either a promoter, or a director, or a KMP of the bank; or (b) owns more than five per cent of paid-up equity share capital of the bank or can, either singly or jointly, exercise more than five per cent of the voting rights of the bank on account of either ownership or voting agreement or through shareholders’ agreement or through any other arrangement; or (c) can, through an agreement with the bank, nominate a director to its Board; or (d) is either singly or jointly, in control of the bank.] (xv) 8 [‘Relative’ with regard to a natural person shall have the same meaning as defined in Section 2(77) of the Companies Act, 2013 and rules framed therein.] (xvi) 'Revaluation Reserve' shall mean a reserve created on the revaluation of assets or net assets represented by the surplus of the estimated replacement cost or estimated market values over the book values thereof. (xvii) ‘Smaller entities’ in the context of ‘Unhedged Foreign Currency Exposure’ prescribed in Chapter-VII of these Directions shall mean those entities on which total exposure of the banking system is at ₹50 crore or less. 9 [(xviia) ‘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.] (xviii) 'Substantial interest' shall have the same meaning as assigned to it in Section 5(ne) of the Banking Regulation Act, 1949. (xix) ‘Term loans’ shall mean loans which have a specified maturity and is payable in instalments or in bullet form. (xx) 'Unhedged Foreign Currency Exposure (UFCE)' shall mean Foreign Currency Exposure (FCE) excluding items which are effective hedge of each other. While estimating UFCE of an entity, banks shall consider only two types of hedges - financial hedge and natural hedge. (2) All other expressions unless defined herein shall have the same meaning as have been assigned to them under the Banking Regulation Act, 1949 or the Reserve Bank of India Act, 1934, and rules / regulations made thereunder, or any statutory modification or re-enactment thereto or in other relevant regulations issued by the Reserve Bank, or Glossary of Terms published by Reserve Bank or as used in commercial parlance, as the case may be. Chapter II - Board Approved Policies 5. 10 [A bank shall put in place a comprehensive Board approved policy on Credit Risk Management. The policy shall, inter alia, cover aspects related to lending to related parties, country risk management, unhedged foreign currency exposures, valuation of properties including empanelment of valuers, and opening of current accounts and CC / OD accounts. The afore-mentioned specific aspects and other areas of concern which need to be addressed in such policies are also detailed in the relevant paragraphs of these Directions.] Chapter III - Credit Risk Evaluation 6. A bank shall strictly follow the credit risk management guidelines contained in the ‘ Guidance Note on Credit Risk Management ’. 7. A bank shall carry out their independent and objective credit appraisal in all cases and must not depend on credit appraisal reports prepared by outside consultants, especially the in-house consultants of the borrowing entity. 8. A bank / lender shall carry out sensitivity tests / scenario analysis, especially for infrastructure projects, which shall inter alia include project delays and cost overruns. This shall aid in taking a view on viability of the project at the time of deciding on deferment of Date of Commencement of Commercial Operations (DCCO) / restructuring. 9. A bank shall ascertain the source and quality of equity capital brought in by the promoters / shareholders. Multiple leveraging, especially, in infrastructure projects, is a matter of concern as it effectively camouflages the financial ratios such as Debt Equity ratio, leading to adverse selection of the borrowers. Therefore, a lender shall ensure at the time of credit appraisal that debt of the parent company is not infused as equity capital of the subsidiary / Special Purpose Vehicle (SPV). 10. A bank shall review their extant sectoral exposure limits for consumer credit and put in place, if not already there, Board approved limits in respect of various sub-segments under consumer credit as may be considered necessary by the Boards as part of prudent risk management. In particular, limits shall be prescribed for all unsecured consumer credit exposures. The limits so fixed shall be strictly adhered to and monitored on an ongoing basis by the Risk Management Committee. 11. A bank shall include in their loan policies / credit appraisal processes, suitable provisions for obtaining Credit Information Reports (CIRs) from one or more Credit Information Companies (CICs) so that the credit decisions are based on credit information available in the system. 12. A bank shall be guided by DoS.CO.PPG.BC.1/11.01.005/2020-21 dated August 21, 2020 for ‘Ad-hoc/ Short Review / Renewal of Credit Facilities’ and DBS.CO.PPD.BC.No. 5/11.01.005/2010-11 dated January 14, 2011 on ‘End Use of Funds – Monitoring' . 11 12A. Credit assessments carried out by a bank shall suitably factor in the possible impact of calamities on borrowers who may be impacted by such events. Chapter IV - Statutory Restrictions A. Advances against Bank’s own Shares 13. In terms of Section 20(1)(a) of the Banking Regulation Act (BR Act), 1949, a bank cannot grant any loans and advances on the security of its own shares. B. Advances to Bank’s Directors 14. In terms of Section 20(1)(b) of the BR Act, 1949, a bank is prohibited from entering into any commitment for granting any loans or advances to or on behalf of any of its directors, or any firm in which any of its directors is interested as partner, manager, employee or guarantor, or any company [not being a subsidiary of the banking company or a company registered under Section 8 of the Companies Act, 2013, or a Government company] of which, or the subsidiary or the holding company of which any of the directors of the bank is a director, managing agent, manager, employee or guarantor or in which he holds substantial interest, or any individual in respect of whom any of its directors is a partner or guarantor. B.1 Clarifications on Applicability of Section 20(1)(b) of BR Act 15. 12 [*****] 13 [15A. In exercise of the powers conferred by clause (a) of the Explanation under sub-section 4 of Section 20 of the Banking Regulation Act, 1949, the following explanations are provided: (1) The sanction or grant of credit facilities to companies in India by a foreign bank having branches in India shall be in compliance with the spirit of Section 20 of the Banking Regulation Act, 1949. Accordingly, a foreign bank branch in India shall not lend to a firm / company in India, if a director in the foreign bank’s Board abroad has an interest in the firm / company or if the company is a subsidiary of any Indian / foreign parent in which the director is interested. (2) Provisions of paragraph 14 above would not apply in the following cases: (i) Credit facilities granted or commitment made by a bank to a company where a director of the bank has substantial interest, if the advance was granted, or commitment was made, prior to the appointment of the said director on the Board of the bank. Provided that, till the director relinquishes the directorship of either the bank or the company, the bank shall not further renew such a facility on or after its contracted maturity or renewal date; enhance the limit; or change any of the terms of the facility before its maturity. (ii) Advances to a public trust, where a trustee is also a director of the lending bank. (iii) Loans and advances to a director against government securities, life insurance policies or fixed deposit, where loan-to-value is not in excess of 100 per cent of the realisable value of such securities or in adherence to specifically prescribed LTV ratio and valuation norms for loans against such a primary security by relevant Directions of the RBI, if any. (iv) Such personal loans and advances to a director, other than loans for investment in financial assets, as permitted to an employee in terms of the approved policy, or that form part of the approved compensation / remuneration package of the director, where applicable. The interest rate charged on all such loans shall not be lower than the rate charged to the employees. (v) Non-Fund Based (NFB) facility on behalf of a director or his/her related party, provided that all such facilities shall be fully secured by cash collateral of equivalent or higher value. Provided that, cash collateral would not be mandatory in exposures arising on account of derivative transactions. (vi) Line of credit / overdraft facility extended by settlement bankers to a qualifying central counterparty (QCCP) which is licensed to operate as a CCP (including a license granted by way of confirming an exemption) and is permitted by the appropriate regulator / overseer to operate as such with respect to the products offered, if such QCCP is classified as a related party.] 14 [ B.2 ***** 16. ***** 17. ***** 18. ***** 19. *****] B.3 Restrictions on Power to Remit Debts 20. Section 20A(1) of the BR Act, 1949 stipulates that a bank shall not, except with the prior approval of the Reserve Bank, remit in whole or in part any debt due to it by - (1) any of its directors, or (2) any firm or company in which any of its directors is interested as director, partner, managing agent or guarantor, or (3) any individual, if any of its directors is their partner or guarantor. 21. In terms of Section 20A (2) of the Act ibid, any remission made in contravention of the provisions of sub-section (1) above shall be void and of no effect. C. Restrictions on Holding Shares in Companies 22. While granting loans and advances against shares, statutory provisions contained in Sections 19(2) and 19(3) of the BR Act, 1949 shall be strictly observed. D. Restrictions on Credit to Companies for Buy-back of their Securities 23. In terms of provisions of the Companies Act, 2013, companies are permitted to purchase their own shares or other specified securities out of their (1) free reserves, or (2) securities premium account, or (3) the proceeds of any shares or other specified securities, subject to compliance of various conditions specified therein. Therefore, a bank shall not provide loans to companies for buy-back of shares / securities. Chapter V - Regulatory Restrictions 15 [ A. ***** 24. ***** A.1 ***** 25. ***** 26. ***** 27. ***** 28. ***** 29. ***** 30. ***** 31. ***** 32. ***** 33. ***** 34. ***** 35. ***** 36. ***** 37. ***** B. ***** 38. ***** 39. ***** 40. ***** 41. ***** 42. *****] 16 [B.1 Lending to Related Parties B.1.1. General Principles 42A. This Section sets out general principles and procedures to be followed for prudent risk management of loans to related parties, wherever allowed. 42B. The Board shall have the overall responsibility of ensuring that suitable mechanisms are put in place for implementation of the policy on lending to related parties by the bank. 42C. The credit policy (hereinafter called the policy) of a bank, as required in terms of the extant Directions, shall contain specific provisions relating to ‘lending to related parties’ in accordance with the provisions of these Directions. The policy shall prescribe, inter alia, additional safeguards to address the risks emanating from lending to related parties. 42D. The policy shall also have specific provisions for lending to ’specified employees’ of the bank and their relatives. 42E. Further, the policy shall, as a part of the whistleblowing mechanism, encourage employees to communicate confidentially and without the risk of reprisal, legitimate concerns, if any, about irregular, unethical, or questionable loans to related parties; and eliminate quid pro quo arrangements, if any. 42F. The policy shall specify aggregate limits for loans towards related parties. Within this aggregate limit, there shall be sub-limits for loans to a single related party and a group of related parties. These limits shall be within the extant prudential exposure limits prescribed by the Reserve Bank. B.1.2 Regulatory Prohibitions 42G. Provisions of paragraph 14 in Chapter IV shall also apply to grant of loans and advances to spouse and minor / dependent children of the directors of banks. However, banks may grant loan or advance to or on behalf of spouses of their directors in cases where the spouse has his / her own independent source of income arising out of his / her employment or profession and the facility so granted is based on standard procedures and norms for assessing the creditworthiness of the borrower. Such facility should be extended on commercial terms, conforming to arms-length principle. 42H. In addition to the restrictions placed on loans and advances by a bank to its directors and the companies in which its directors are interested under Section 20 of the Banking Regulation Act, 1949, a bank shall not have any exposure (including investments in the equity / debt capital instruments) to its promoters and their relatives; shareholders with shareholding of 10 per cent or more in the paid-up equity capital of the bank; as also the entities in which they (promoters, their relatives and shareholders as stated above) have significant influence or control (as defined under Accounting Standards Ind AS 28 and Ind AS 110). Provided that, nothing in paragraph 42H above shall apply in cases where a financial institution, a scheduled commercial bank, a foreign portfolio investor or a mutual fund holds ten per cent or more of the equity share capital of the bank as non-strategic investment and without any control of the bank. B.1.3 Materiality Threshold 42I. Loans to related parties, which are not prohibited in terms of provisions of Chapter IV or this Chapter of these Directions, or which have been permitted under power exercised by the Reserve Bank under clause (a) of the Explanation under Section 20(4) of the Banking Regulation Act, 1949, except (i) credit facilities fully secured by cash or liquid securities and in accordance to prescribed LTV and valuation norms for such securities and (ii) Interbank loans, shall be subject to a materiality threshold as per the credit policy, which shall not be higher than the following ceilings: Asset Size of the bank (in ₹ crore) Materiality Threshold Ceilings > 10,00,000 ₹25 crore ≥ 1,00,000 to up to 10,00,000 ₹10 crore Less than 100,000 ₹5 crore Asset size based on the last audited balance sheet. For loans, materiality threshold shall apply at individual transaction level. 42J. Materiality thresholds may vary for different categories of loans to related parties as per the bank’s policy. 42K. All loans above the prescribed materiality threshold shall be sanctioned either by the Board or by the ‘Committee on Lending to Related Parties’ of the bank. As regards loans below the materiality threshold, the same can be sanctioned by appropriate authority in terms of powers delegated to them. B.1.4 Recusal of Interested Parties 42L. Directors, KMP, or ‘specified employees’ shall recuse themselves from deliberations and decision on loan proposals, or contracts and arrangements, involving themselves or their related parties. Such recusal shall also extend to deliberations and decisions relating to any subsequent material changes to the terms of such loans, including one-time settlements, write-offs, waivers, enforcement of security, implementation of resolution plans, etc. B.1.5 Monitoring of Loans to Related Parties 42M. A bank shall put in place a suitable mechanism for maintaining and periodically updating the list of all the related persons, and the related parties thereof, as well as the loans sanctioned by the bank to such related persons and related parties. 42N. Credit facilities sanctioned to 'specified employees’ and their relatives shall be reported to the Board on an annual basis. 42O. Periodic reviews shall be conducted at quarterly or shorter intervals by internal auditors to check, inter alia, whether guidelines and procedures in relation to loans to related parties are being adhered to or not. 42P. Any deviation from the policy relating to lending to related parties and reasons therefor shall be reported to the Audit Committee of the Board. 42Q. Any product, entity or structure formed with the objective of circumventing these Directions through various means, such as reciprocal lending or quid pro quo arrangements, and identified as such by the auditors of the bank or by the supervisory authority and investigating agencies shall always be treated as lending to related party. B.1.6 Others 42R. In addition to the provisions of Chapter V on lending to related parties, listed banks shall continue to comply with the applicable provisions of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, as amended from time to time. 42S. Banks shall also adhere to instructions placed in terms of Chapter VI- Prudential Limits on Intra-Group Transactions and Exposure of Reserve Bank of India (Commercial Banks - Concentration Risk Management) Directions, 2025 for transactions with their group entities. B.1.7 Enforcement Actions 42T. Any non-compliance with and circumvention of these Directions shall result in supervisory and enforcement actions as deemed appropriate by the Reserve Bank. These actions may include imposition of monetary penalty, requirement of full provisioning, directions to conduct staff accountability exercises, forensic audits, and restrictions or any other supervisory and enforcement actions as deemed fit.] C. Restrictions on Grant of Financial Assistance to Industries Producing / Consuming Ozone Depleting Substances (ODS) 43. A bank shall not extend finance for setting up of new units consuming / producing the Ozone Depleting Substances (ODS). No financial assistance shall be extended to small / medium scale units engaged in the manufacture of the aerosol units using chlorofluorocarbons (CFC) and no refinance would be extended to any project assisted in this sector. Chapter VI - Country Risk Management A. Policy & Procedures 44. A bank shall formulate appropriate, well documented, and clearly defined 'Country Risk Management' policy within the Credit Risk Management policy prescribed in Chapter II of these Directions, with the approval of its Board. ’Country Risk Management’ policy shall address the issues of identifying, measuring, monitoring, and controlling country exposure risks. The policy shall specify the responsibility and accountability of the various levels for the country risk management decisions. The bank shall also put in place procedures for ensuring that necessary steps are taken in accordance with the policy. The policy shall be periodically reviewed by the Board on the basis of the experience gained. 45. A bank shall institute appropriate procedures for dealing with country risk problems. They shall have in place contingency plans and clear exit strategies, which would be activated at times of crisis. Appropriate systems and procedures shall be laid down with the approval of the Board to handle situations involving significant changes in conditions in any country. For the present, only in respect of the country, where a bank’s net funded exposure is one per cent or more of its total assets, the bank is required to formulate the Country Risk Management policy for dealing with the country risk problems. 46. The Country Risk Management policy shall stipulate rigorous application of the 'Know Your Customer' (KYC) principle in international activities which shall not be compromised by availability of collateral or shortening of maturities. Country risk element shall be explicitly recognised while assessing the counter-party risk. B. Scope 47. A bank shall reckon both funded and non-funded exposures from their domestic as well as foreign branches while identifying, measuring, monitoring, and controlling country risks. In the case of foreign banks operating in India, the scope shall be confined to their branches in India. A bank shall refer to Reserve Bank of India (Commercial Banks – Credit Facilities) Directions, 2025 for permissible Non-Fund based credit facilities. An illustrative list of funded and non-funded exposures is furnished below: Funded Exposures Non-Funded Exposures Cash balances Bank balances Deposit placements Investments Loans and advances Trade credits/receivables Overdraft in Vostro Account Remittances honoured under drawing arrangement Other monetary assets Letters of Credit Committed lines of credit Guarantees Performance bonds, bid bonds, warranties. Confirmation of LCs issued by foreign banks. Commitments undertaken against the counter-guarantees of foreign banks. 48. A bank shall take into account indirect country risk. For example, exposures to a domestic commercial borrower with a large economic dependence on a certain country shall be considered as subject to indirect country risk. C. Ratings 49. A bank shall put in place appropriate systems to move over to internal assessment of country risk and shall evolve sound systems for measuring and monitoring country risk. The system shall be able to identify the full dimensions of country risk as well as incorporating features that acknowledge the links between credit and market risk. A bank shall use a variety of internal and external sources as a means to measure country risk. A bank shall not rely solely on rating agencies or other external sources as their only country risk-monitoring tool and shall also incorporate information from the relevant country managers of their foreign branches into their country risk assessments. However, the rating accorded by a bank to any country shall not be better than the rating of that country by an international rating agency. For the present, only in respect of the country, where a bank’s net funded exposure is one per cent or more of its total assets, the bank is required to undertake internal assessment of country risk rating. 50. The frequency of periodic reviews of country risk ratings shall be at least once a year with a provision to review the rating of specific country, based on any major events in that country, where bank exposure is high, even before the next periodical review of the ratings is due. 51. Till such time, as banks move over to internal rating system, a bank may use the seven-category classification followed by Export Credit Guarantee Corporation of India Ltd. (ECGC) for the purpose of classification and making provisions for country risk exposures. ECGC shall provide to a bank, on request, quarterly updates of their country classifications and shall also inform all banks in case of any sudden major changes in country classification in the interim period. D. Monitoring of exposures 52. A bank shall monitor their country exposures on a real time basis. 53. Management of country risk shall incorporate stress testing as one method to monitor actual and potential risks. Stress testing shall include an assessment of the impact of alternative outcomes to important underlying assumptions. 54. Boards shall review the country risk exposures at quarterly intervals. The review shall include progress in establishing internal country rating systems, compliance with the regulatory and the internal limits, results of stress tests and the exit options available to the banks in respect of countries belonging to ‘high risk & above’ categories. In case, any significant deterioration takes place in respect of any particular country risk or overall exposure, banks shall report to the Board such developments in its next meeting, without waiting for the quarterly review by the Board. 55. Country risk management processes employed by a bank shall require adequate internal controls that include audits or other appropriate oversight mechanisms to ensure the integrity of the information used by senior officials in overseeing compliance with policies and limits. Chapter VII - Unhedged Foreign Currency Exposure (UFCE) 56. A bank shall assess and monitor the Unhedged Foreign Currency Exposure (UCFE) of entities and maintain adequate provisioning / capital for the same, as per the instructions provided in this Chapter. An explanatory note providing the background of these instructions is furnished in Annex I . 57. Computation of UFCE (1) A bank shall ascertain the Foreign Currency Exposure (FCE) of all entities at least on an annual basis. A bank shall compute the FCE following the relevant accounting standard applicable for the entity. Explanation: (i) The requirement in paragraph 57(1) would not be applicable for entities which are already submitting the information on UFCE as per paragraph 57(2). (ii) To ascertain the FCE, a bank shall consider the items maturing or having cash flows over the period of next five years. Note: For arriving at the foreign currency exposure of entities, their exposure from all sources including foreign currency borrowings and External Commercial Borrowings shall be taken into account. (2) A bank shall assess the Unhedged Foreign Currency Exposure (UFCE) of entities with FCE by obtaining information on UFCE from the concerned entity. Provided that the information on UFCE shall be obtained from entities on a quarterly basis based on statutory audit, internal audit, or self-declaration by the concerned entity. Provided further that UFCE information shall be audited and certified by the statutory auditors of the entity, at least on an annual basis. 58. Provisioning and Capital Requirements (1) A bank shall determine the potential loss to an entity from UFCE using the largest annual volatility in the USD-INR exchange rates during the last 10 years. Explanation: A bank shall use the data published by FEDAI on largest annual volatility of USD-INR rate over a period of last 10 years and the same shall be used for computation of potential loss by multiplying it with UFCE. Note: The UFCE in currencies other than USD shall be converted into USD using the current market rates for determining the potential loss from UFCE. (2) A bank shall determine the susceptibility of the entity to adverse exchange rate movements by computing the ratio of the potential loss to entity from UFCE and the entity’s EBID over the last four quarters as per the latest quarterly results certified by the statutory auditors. Explanation: For the purpose of this paragraph, there is no differentiation between limited audited results and full audited results. Note: (i) In cases where a bank is not in a position to obtain information on UFCE or EBID from listed entities for the latest quarter due to restrictions on disclosure of such information prior to finalisation of accounts, the bank shall have the option to use data pertaining to the immediately preceding last four quarters for computing capital and provisioning requirements. (ii) In case of unlisted entities where the audited results of the last quarter are not available, the latest audited quarterly or annual results available shall be used. The annual EBID figure used shall at least be of the last financial year. (3) Accordingly, a bank shall apply incremental capital and provisioning requirements to all exposures to such entities as under: Table 1: Incremental Provisioning and Capital Requirements for UFCE Potential Loss / EBID (per cent) Incremental Provisioning Requirement (basis points) Incremental Capital Requirement Upto 15 per cent 0 0 More than 15 per cent and upto 30 per cent 20bps 0 More than 30 per cent and upto 50 per cent 40bps 0 More than 50 percent and upto 75 per cent 60bps 0 More than 75 per cent 80bps 25 per centage point increase in the risk weight Explanation: (i) Incremental provisioning and capital requirements shall be over and above the present requirements i.e., general provision for standard assets and applicable credit risk weights as per Reserve Bank of India (Commercial Banks – Income Recognition, Asset Classification and Provisioning) Directions, 2025 and Reserve Bank of India (Commercial Banks – Prudential Norms on Capital Adequacy) Directions, 2025 , respectively. (ii) As an example for the 25 per centage point increase in the risk weight in case of Potential Loss / EBID exceeding 75 per cent, for an entity which otherwise attracts a risk weight of 50 per cent, the applicable risk weight would become 75 per cent. Note: The incremental provisioning for UFCE shall be based on the total exposure amount which is used for computing standard asset provisioning and the incremental capital requirements for UFCE shall be based on the total exposure amount which is used for computing credit risk capital requirements. (4) A bank shall calculate the incremental provisioning and capital requirements at a minimum on a quarterly basis. (5) For projects under implementation and for new entities, a bank shall calculate the incremental provisioning and capital requirements based on projected average annual EBID for the three years from the date of commencement of commercial operations. Provided that the incremental provisioning requirement shall be subjected to a minimum floor of 20 bps of provisioning requirement. (6) In cases where a bank is not able to get sufficient data to assess UFCE and compute incremental capital and provisioning requirements except for the smaller entities covered under the alternative method provided in paragraph 58(7) below, the bank shall take a conservative view and place the exposure to the entity at the last bucket (in Table 1 above) which requires incremental provisioning of 80bps and a 25 per centage point increase in risk weight. (7) A bank shall have the option to follow an alternative method for exposures to smaller entities which are having foreign currency exposures and are not in position to provide information on their UFCE as per paragraph 57(2). Under this alternative method, a bank shall apply an incremental provisioning of 10 bps over and above extant standard asset provisioning instead of computing incremental capital and provisioning requirements as provided in paragraphs 58(1) to 58(5). (8) The incremental provision requirement for UFCE shall be treated as general provision for disclosures and inclusion in Tier 2 capital. 59. Systems and Controls (1) A bank shall incorporate the risk of UFCE of entities in their internal credit rating system and credit risk management policies and procedures. (2) A bank shall stipulate internal limits for UFCE within the overall Board approved risk policy of the bank. 60. Consortium Lending In the case of consortium / Multiple Banking Arrangements (MBAs), the consortium leader / bank having the largest exposure shall have the lead role in monitoring the unhedged foreign exchange exposure of entities. Note: A banks shall put in place a system for information sharing and dissemination in terms of Reserve Bank of India (Commercial Banks – Transfer and Distribution of Credit Risk) Directions, 2025 . 61. Exemption / Relaxation A bank shall have the option to exclude the following exposures from the calculation of UFCE: (1) Exposures to entities classified as sovereign, banks, and individuals; Explanation: (i) For this purpose, ‘sovereign’ shall include domestic and foreign sovereign as provided in Reserve Bank of India (Commercial Banks – Prudential Norms on Capital Adequacy) Directions, 2025 . (ii) For this purpose, the RBI regulated Financial Institutions, Bank of International Settlement (BIS), International Monetary Fund (IMF) and eligible Multilateral Development Banks (MDBs) listed in Reserve Bank of India (Commercial Banks – Prudential Norms on Capital Adequacy) Directions, 2025 shall also be considered as ‘bank’. (2) Exposures classified as Non-Performing Assets; (3) Intra-group foreign currency exposures of Multinational Corporations (MNCs) incorporated outside India; and Provided that the bank is satisfied that such foreign currency exposures are appropriately hedged or managed robustly by the parent. Explanation: For example, an Indian subsidiary of an MNC incorporated outside India may have borrowed from its parent. (4) Exposures arising from derivative transactions and / or factoring transactions with entities, provided such entities have no other exposures to banks in India. 62. Overseas Branches / Subsidiaries (1) The provisions of this Chapter shall also be applicable to overseas branches / subsidiaries of a bank subject to the following: (i) With respect to the exposure to entities incorporated outside India, information on UFCE shall be obtained from such entities on a quarterly basis based on internal audit or self-declaration and the requirement of certificate from statutory auditors on annual basis, as provided in paragraph 57(2), may not be insisted upon. In cases where a bank is not able to obtain information on UFCE from concerned entities, the treatment provided in paragraph 58(6) shall apply. (ii) A bank shall compute the potential loss due to UFCE by replacing INR with the domestic currency of that jurisdiction and USD with the foreign currency (i.e., currency other than domestic currency of that jurisdiction) in which the entity has maximum exposure in paragraph 58(1). Note: A bank shall compute the largest annual volatility over a period of last 10 years in the following manner: First, daily changes in the foreign exchange rates shall be computed as a log return of today's rate over the previous day's rate. Second, daily volatility shall be computed as standard deviation of these returns over a period of one year (250 observations). Third, this daily volatility shall be annualised by multiplying it by square root of 250. This computation shall be performed on a daily basis for all the days in the last 10 years. The largest annual volatility thus computed shall be used for the computation of the potential loss by multiplying it with the UFCE. Chapter VIII - Legal Entity Identifier (LEI) for Borrowers 63. The Legal Entity Identifier code is conceived as a key measure to improve the quality and accuracy of financial data systems for better risk management post the Global Financial Crisis. LEI is a 20-digit unique code to identify parties to financial transactions worldwide. 64. A bank shall ensure that non-individual borrowers with aggregate exposure of ₹5 crore and above from banks (Scheduled Commercial Banks (excluding Regional Rural Banks), Local Area Banks, Small Finance Banks, and Primary (Urban) Co-operative Banks) and Financial Institutions (All India Financial Institutions and NBFCs (including HFCs)) obtain LEI codes. Explanation: 'Exposure' for this purpose shall include all fund based and non-fund based (credit as well as investment) exposure of banks / FIs to the borrower. Aggregate sanctioned limit or outstanding balance, whichever is higher, shall be reckoned for the purpose. Lenders shall ascertain the position of aggregate exposure based on information available either with them, or Central Repository of Information on Large Credits (CRILC) database or declaration obtained from the borrower. 65. Borrowers who fail to obtain LEI codes from an authorised Local Operating Unit (LOU) shall not be sanctioned any new exposure nor shall they be granted renewal / enhancement of any existing exposure. However, Departments / Agencies of Central and State Governments (not Public Sector Undertakings registered under Companies Act or established as Corporation under the relevant statute) shall be exempted from this provision. Explanation: A government agency is an administrative set up of the government, responsible for certain area/s of activity, e.g., ISRO, BIS, DGCA, etc. 66. A bank shall encourage large borrowers to obtain LEI for their parent entity as well as all subsidiaries and associates. 67. Entities can obtain LEI from any of the LOUs accredited by the Global Legal Entity Identifier Foundation (GLEIF) – the entity tasked to support the implementation and use of LEI. In India, LEI code may be obtained from Legal Entity Identifier India Ltd (LEIIL), a subsidiary of the Clearing Corporation of India Limited (CCIL), which has been recognised by the Reserve Bank as issuer of LEI under the Payment and Settlement Systems Act, 2007 and is accredited by the GLEIF as the Local Operating Unit (LOU) in India for issuance and management of LEI. The rules, procedure and documentation requirements may be ascertained from LEIIL . 68. After obtaining LEI code, a bank shall also ensure that borrowers renew the codes as per GLEIF guidelines. Chapter IX - Valuation of Properties - Empanelment of Valuers 69. A bank shall be guided by the following aspects while formulating a policy on valuation of properties and appointment of valuers. 70. Policy for valuation of properties (1) A bank shall have a Board approved policy in place for valuation of properties including collaterals accepted for their exposures. (2) The valuation shall be done by professionally qualified independent valuers i.e. the valuer shall not have a direct or indirect interest. (3) A bank shall obtain minimum two Independent valuation reports for properties valued at ₹50 crore or above. 71. Revaluation of bank’s own properties In addition to the above, banks may keep the following aspects in view while formulating policy for revaluation of their own properties: (1) As a bank is permitted to include revaluation reserves as part of Capital in terms of Reserve Bank of India (Commercial Banks - Prudential Norms on Capital Adequacy) Directions, 2025 , it is necessary that revaluation reserves represent true appreciation in the market value of the properties and banks have in place a comprehensive policy for revaluation of fixed assets owned by them. Such a policy shall inter alia cover procedure for identification of assets for revaluation, maintenance of separate set of records for such assets, the frequency of revaluation, depreciation policy for such assets, policy for sale of such revalued assets etc. The policy shall also cover the disclosure required to be made in the 'Notes on Account' regarding the details of revaluation such as the original cost of the fixed assets subject to revaluation and accounting treatment for appreciation / depreciation etc. (2) As the revaluation shall reflect the change in the fair value of the fixed asset, the frequency of revaluation shall be determined based on the observed volatility in the prices of the assets in the past. Further, any change in the method of depreciation shall reflect the change in the expected pattern of consumption of the future economic benefits of the assets. A bank shall adhere to these principles meticulously while changing the frequency of revaluation / method of depreciation for a particular class of asset and shall make proper disclosures in this regard. 72. Policy for Empanelment of Independent valuers (1) A bank shall have a procedure for empanelment of professional valuers and maintain a register / record of 'approved list of valuers'. (2) A bank may prescribe a minimum qualification for empanelment of valuers. Different qualifications may be prescribed for different classes of assets (e.g. land and building, plant and machinery, agricultural land, etc.). While prescribing the qualification, the bank shall take into consideration the qualifications prescribed under Section 34AB (Rule 8A) of the Wealth Tax Act, 1957. 73. A bank shall also be guided by the relevant Accounting Standard issued by the Institute of Chartered Accountants of India. Chapter X - Filing of Security Interest relating to Immovable (other than equitable mortgage), Movable, and Intangible Assets in CERSAI 74. The Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI), a Government company licensed under section 8 of the Companies Act 2013 has been incorporated for the purpose of operating and maintaining the Central Registry under the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). 75. It is to be noted that initially transactions relating to securitization and reconstruction of financial assets and those relating to mortgage by deposit of title deeds to secure any loan or advances granted by banks and financial institutions, as defined under the SARFAESI Act, are to be registered in the Central Registry. The records maintained by the Central Registry shall be available for search by any lender or any other person desirous of dealing with the property. Availability of such records would prevent frauds involving multiple lending against the security of same property as well as fraudulent sale of property without disclosing the security interest over such property. It may be noted that under the provisions of Section 23 of the SARFAESI Act, every transaction of security interest is required to be filed with the Registry. 76. The Government of India has issued a Gazette Notification dated January 22, 2016 for filing of the following types of security interest on the CERSAI portal: (1) Particulars of creation, modification or satisfaction of security interest in immovable property by mortgage other than mortgage by deposit of title deeds. (2) Particulars of creation, modification or satisfaction of security interest in hypothecation of plant and machinery, stocks, debts including book debts or receivables, whether existing or future. (3) Particulars of creation, modification or satisfaction of security interest in intangible assets, being know how, patent, copyright, trademark, license, franchise or any other business or commercial right of similar nature. (4) Particulars of creation, modification or satisfaction of security interest in any ‘under construction’ residential or commercial or a part thereof by an agreement or instrument other than mortgage. 77. A bank is advised to file the charges relating to all current transactions with CERSAI on an ongoing basis. 17 [ Chapter XI - [Deleted] 78. ***** 79. ***** 80. ***** 81. ***** 82. ***** 83. ***** 84. ***** 85. ***** 86. ***** 87. ***** 88. ***** 89. ***** 90. ***** 91. *****] 18 [ Chapter XIA - Maintenance of Cash Credit Accounts, Current Accounts and Overdraft Accounts by Banks 91A. Current Accounts, Cash Credit Accounts (CC), and Overdraft Accounts (OD) may all be used as transaction accounts by the customers, which raises concerns relating to credit monitoring by the lenders. With a view to strengthening credit discipline and facilitating better monitoring of transactions and utilisation of funds, this Chapter provides a framework for maintaining such accounts by banks. A. Cash Credit Accounts 91B. CC account is operationally different from a current account or OD account, given its primary nature as a working capital facility linked to the value of the borrower's current assets. A bank may provide such cash credit facilities as per the needs of the customer, without any restriction under this Chapter. B. Current Accounts and OD Accounts 91C. A bank may maintain current account or OD account without any restriction in case of customers where the aggregate exposure of the banking system to the customer is less than ₹10 crore. Explanation (1): ‘Banking System’ for the purpose of this Chapter shall include Commercial Banks (including Small Finance Banks, Local Area Banks, and Regional Rural Banks, but excluding Payments Banks), Urban Co-operative Banks and Rural Co-operative Banks (State Co-operative Banks and Central Co-operative Banks). Explanation (2): ‘Exposure’ for the purpose of this Chapter means the sum of all sanctioned fund-based credit facilities and non-fund-based facilities availed by the borrower from the banking system. 91D. In case of customers to whom the exposure of the banking system is ₹10 crore or more: (1) A bank may maintain current accounts or OD accounts as per the needs of the customer provided that the bank has either: (i) A minimum 10 per cent share in banking system’s aggregate exposure to the borrower; or (ii) A minimum 10 per cent share in banking system’s aggregate fund-based exposure to the borrower. Provided that, in case no bank within the banking system meets the above criteria, or only one bank meets the above criteria, two banks from the banking system having the largest exposures to the borrower may maintain current accounts or OD accounts. Provided further that, in case where only one bank within the banking system has any exposure to the borrower, one more bank of the customer’s choice within the banking system may maintain current accounts, subject to furnishing of a no-objection certificate (NOC) from the bank that has the exposure to the borrower. Provided further that, in case where no Scheduled Commercial Bank (SCB) meets the above criteria, but the borrower nevertheless desires to have a current account with an SCB, such borrowers may maintain current accounts with any one SCB of their choice, subject to furnishing of NOCs from all lending banks within the banking system. (2) A bank, not meeting the eligibility criteria at paragraph (1) above , may maintain only collection accounts. Explanation: ‘Collection Account’ for the purpose of this Chapter means a current account or OD account used primarily for receipts of cash inflows of the account holder. Restricted payments / cash outflows from such account shall be subject to the conditions outlined in paragraph 91F of these Directions. 91E. With a view to ensuring credit discipline, lenders may include additional covenants as per their policies in their loan agreements in mutual agreement with borrowers. C. Collection Accounts 91F. Funds credited into a collection account shall be remitted within two working days of receipt of such funds to a CC account, current account, or OD account maintained with any bank in the banking system and designated by the borrower for this purpose (hereinafter referred to as ‘designated account’ in this Chapter). Any disbursement of overdraft limit from an OD account, which is in the nature of a collection account, shall be through the designated account only. Provided that statutory dues such as taxes, and dues, if any, to the bank maintaining the collection account may be debited before remitting the funds. D. Exemptions 91G. The restrictions placed in terms of paragraph 91D(1) of these Directions shall not be applicable to the accounts mentioned below: (1) Accounts opened as per the provisions of Foreign Exchange Management Act, 1999 (FEMA) and notifications issued thereunder, including accounts mandated for ensuring compliance under the FEMA framework. (2) Specific accounts or transactions which are stipulated under a statute or a specific instruction of a financial sector regulator, or the Central Government or a State Government. Explanation: ‘Financial sector regulator’ for the purpose of this Chapter refers to the Reserve Bank of India (RBI), the Securities and Exchange Board of India (SEBI), the Insurance Regulatory and Development Authority of India (IRDAI) and the Pension Fund Regulatory and Development Authority (PFRDA). (3) Accounts of entities regulated by a financial sector regulator, used for the purpose of carrying out their regulated activities. Provided that banks operating the above-mentioned exempted accounts shall ensure that transactions in such accounts are used only for the permitted / specified purposes. Surplus funds, if any, in such accounts shall be remitted to the designated account. 91H. Banks, in certain cases, offer products or services that inherently require routing transactions through a current account maintained with themselves. In such cases, banks which are otherwise not eligible to maintain accounts in terms of paragraph 91D(1) of these Directions may also maintain current accounts, subject to the conditions specified below: (1) Such accounts shall only be opened in accordance with a Board-approved policy for the product / service, which shall detail and justify, inter alia, the necessity of operating these accounts. (2) Transactions in such accounts shall be limited for the specified purpose(s). Cash transactions, debits at the discretion of customers, and issuance of instruments like electronic cards and cheque books shall not be permitted in such accounts. Surplus funds, if any, in such accounts shall be remitted to the designated account. (3) Banks shall implement adequate safeguards to ensure that such accounts are not used as substitutes for current accounts, or employed to circumvent restrictions placed on current accounts, or misused for activities such as fund diversion or fraud. E. Compliance Monitoring 91I. For the purpose of ensuring ongoing compliance with this Chapter, all banks shall monitor accounts maintained with them on a regular basis, and in any case at least once every half-year. 91J. In case it is observed that a bank is no longer eligible to maintain a current account or OD account opened in terms of: (1) paragraph 91C due to increase in exposure of banking system to the borrower up to or beyond the specified threshold of ₹10 crore; or (2) paragraph 91D(1), due to changes in the bank’s share in banking system’s aggregate exposure or in aggregate fund-based exposure to the borrower; or due to non-availability of NOC from banks that have exposure to the borrower; then the bank shall notify the customer(s) concerned promptly, and in any case within one month from the date of observing such ineligibility, that the account must either be converted to a collection account or closed. The conversion or closure process, as the case may be, shall be completed within three months of observing such ineligibility. 91K. Accounts opened in terms of these Directions shall be appropriately flagged in the bank’s core banking solution (CBS) to ensure clear identification and to facilitate effective monitoring. Banks maintaining multiple accounts for a borrower shall ensure that such accounts and transactions and cashflows therein are monitored at the borrower level as also at the account level. F. Other Provisions 91L. A bank shall ensure that an accountholder utilise their account solely for transactions related to their authorised business or activities. These accounts shall not, under any circumstances, be used as pass-through channels for facilitating third-party transactions. Provided that entities expressly licensed or authorised by a financial sector regulator to facilitate third-party transactions may continue to do so. However, such activities shall strictly be limited to the specific transactions they are authorised to do and shall not extend beyond that scope. Any account that has been permitted to carry out such third-party transactions shall be appropriately flagged in the bank’s CBS to ensure clear identification and to facilitate effective monitoring. 91M. A bank shall ensure that an accountholder, who is not licensed or authorised by the Reserve Bank to accept deposits or to provide payment services, do not engage in such activities through accounts maintained with them. 91N. Robust monitoring systems shall be implemented to detect the above prohibited usage, including mechanisms to flag accounts exhibiting unusually high transaction volumes, frequent pass-through activities, or inconsistencies between the accountholder’s stated line of business and transactions carried out through the account. 91O. Term loans sanctioned by the bank shall preferably be remitted directly to the intended beneficiary’s account(s) or for the specified end-use, where such beneficiary is identifiable, rather than routing the funds through the borrower’s account.] Chapter XII - Loan System for Delivery of Bank Credit 92. With a view to enhance credit discipline among the larger borrowers enjoying working capital facility from the banking system, delivery of bank credit for such borrowers shall be as under: (1) Minimum level of ‘loan component’ In respect of borrowers having aggregate fund based working capital limit (WCL) of ₹150 crore and above from the banking system (excluding intra-day credit facilities), the outstanding ‘loan component’ (Working Capital Loan) must be equal to at least 60 per cent of the sanctioned fund based working capital limit, including ad hoc limits and TODs. Hence, for such borrowers, drawings up to 60 per cent of the total fund based working capital limits shall only be allowed from the ‘loan component’. Drawings in excess of the minimum ‘loan component’ threshold may be allowed in the form of cash credit / overdraft facility. The bifurcation of the working capital limit into loan and cash credit / overdraft components shall be effected after excluding the export credit limits (pre-shipment and post-shipment) and bills limit for inland sales from the working capital limit. Investment by the bank in the commercial papers issued by the borrower shall form part of the loan component, provided the investment is sanctioned as part of the working capital limit. The above instructions on minimum loan component shall not be applicable on the following: (i) Intra-day credit facilities. (ii) Credit facilities extended through the Food Credit Consortium. (iii) Credit facilities extended to Central Counterparties. (iv) Credit facilities extended by overseas branches of the bank. (2) Sharing of Working Capital Finance Bifurcation of working capital facility into loan component and cash credit / overdraft component shall be maintained at individual bank level in all cases, including consortium lending. (3) Amount and tenor of the loan The amount and tenor of the loan component may be fixed by banks in consultation with the borrowers, subject to the tenor being not less than seven days. Banks may decide to split the loan component into WCLs with different maturity periods as per the needs of the borrowers. (4) Repayment / Renewal / Rollover of Loan Component Banks / consortia / syndicates will have the discretion to stipulate repayment of the WCLs in instalments or by way of a 'bullet' repayment, subject to Reserve Bank of India (Commercial Banks – Income Recognition, Asset Classification and Provisioning) Directions, 2025 . A bank may consider rollover of the WCLs at the request of the borrower, subject to compliance with the directions ibid. (5) For credit conversion factor for undrawn portion of working capital limits sanctioned to the aforesaid large borrowers, a bank shall refer to Reserve Bank of India (Commercial Banks - Prudential Norms on Capital Adequacy) Directions, 2025 . Chapter XIII - Repeal and other provisions A. Repeal and saving 93. With the issue of these Directions, the existing Directions, instructions, and guidelines relating to Credit Risk Management as applicable to commercial banks stand repealed, as communicated vide circular DOR.RRC.REC.302/33-01-010/2025-26 dated November 28, 2025 . The Directions, instructions and guidelines repealed prior to the issuance of these Directions shall continue to remain repealed. 94. Notwithstanding such repeal, any action taken or purported to have been taken, or initiated under the repealed Directions, instructions, or guidelines shall continue to be governed by the provisions thereof. All approvals or acknowledgments granted under these repealed lists shall be deemed as governed by these Directions. Further, the repeal of these directions, instructions, or guidelines shall not in any way prejudicially affect: (1) any right, obligation or liability acquired, accrued, or incurred thereunder; (2) any, penalty, forfeiture, or punishment incurred in respect of any contravention committed thereunder; (3) any investigation, legal proceeding, or remedy in respect of any such right, privilege, obligation, liability, penalty, forfeiture, or punishment as aforesaid; and any such investigation, legal proceedings or remedy may be instituted, continued, or enforced and any such penalty, forfeiture or punishment may be imposed as if those directions, instructions, or guidelines had not been repealed. B. Application of other laws not barred 95. The provisions of these Directions shall be in addition to, and not in derogation of the provisions of any other laws, rules, regulations, or directions, for the time being in force. C. Interpretations 96. For the purpose of giving effect to the provisions of these Directions or in order to remove any difficulties in the application or interpretation of the provisions of these Directions, the Reserve Bank may, if it considers necessary, issue necessary clarifications in respect of any matter covered herein and the interpretation of any provision of these Directions given by the Reserve Bank shall be final and binding. (Vaibhav Chaturvedi) Chief General Manager 1 Inserted with effect from April 01, 2026 vide Reserve Bank of India (Commercial Banks – Credit Risk Management) – Amendment Directions, 2026 dated January 05, 2026 . 2 Inserted with effect from April 01, 2026 vide Reserve Bank of India (Commercial Banks – Credit Risk Management) – Amendment Directions, 2026 dated January 05, 2026 . 3 Inserted with effect from April 01, 2026 vide Reserve Bank of India (Commercial Banks – Credit Risk Management) – Amendment Directions, 2026 dated January 05, 2026 . 4 Inserted with effect from April 01, 2026 vide Reserve Bank of India (Commercial Banks – Credit Risk Management) – Amendment Directions, 2026 dated January 05, 2026 . 5 Inserted with effect from April 01, 2026 vide Reserve Bank of India (Commercial Banks – Credit Risk Management) – Amendment Directions, 2026 dated January 05, 2026 . 6 Substituted with effect from April 01, 2026 vide Reserve Bank of India (Commercial Banks – Credit Risk Management) – Amendment Directions, 2026 dated January 05, 2026 . 7 Inserted with effect from April 01, 2026 vide Reserve Bank of India (Commercial Banks – Credit Risk Management) – Amendment Directions, 2026 dated January 05, 2026 . 8 Substituted with effect from April 01, 2026 vide Reserve Bank of India (Commercial Banks – Credit Risk Management) – Amendment Directions, 2026 dated January 05, 2026 . 9 Inserted with effect from April 01, 2026 vide Reserve Bank of India (Commercial Banks – Credit Risk Management) – Amendment Directions, 2026 dated January 05, 2026 10 Substituted with effect from April 01, 2026 vide Reserve Bank of India (Commercial Banks – Credit Risk Management) – Amendment Directions, 2026 dated January 05, 2026 . 11 Inserted with effect from July 01, 2026 vide Reserve Bank of India (Commercial Banks – Credit Risk Management) Third Amendment Directions, 2026 dated April 29, 2026 . 12 Deleted with effect from April 01, 2026 vide Reserve Bank of India (Commercial Banks – Credit Risk Management) – Amendment Directions, 2026 dated January 05, 2026 . 13 Inserted with effect from April 01, 2026 vide Reserve Bank of India (Commercial Banks – Credit Risk Management) – Amendment Directions, 2026 dated January 05, 2026 . 14 Deleted with effect from April 01, 2026 vide Reserve Bank of India (Commercial Banks – Credit Risk Management) – Amendment Directions, 2026 dated January 05, 2026 . 15 Deleted with effect from April 01, 2026 vide Reserve Bank of India (Commercial Banks – Credit Risk Management) – Amendment Directions, 2026 dated January 05, 2026 . 16 Inserted with effect from April 01, 2026 vide Reserve Bank of India (Commercial Banks – Credit Risk Management) – Amendment Directions, 2026 dated January 05, 2026 . 17 Deleted with effect from April 01, 2026 vide Reserve Bank of India (Commercial Banks - Credit Risk Management) Amendment Directions, 2025 dated December 11, 2025 . 18 Inserted with effect from April 01, 2026 vide Reserve Bank of India (Commercial Banks - Credit Risk Management) Amendment Directions, 2025 dated December 11, 2025 .