Synopsis
The Reserve Bank of India has issued new rules for related party transactions. Existing deals not meeting the new standards can continue until they mature. Equity investments are not included in these new directions. The RBI aims to prevent conflicts of interest and improve corporate governance. These changes will affect banks and other regulated entities.
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Kolkata: The Reserve Bank of India on Monday notified sweeping changes to credit risk management rules for commercial banks, prohibiting loans to their own promoters, large shareholders and related entities, while mandating stronger governance, disclosure and monitoring frameworks.
The new norms, effective April 1, 2026, require banks to adopt board-approved policies covering lending to related parties, set aggregate and sub-limits for such exposures, and include whistleblower mechanisms to flag irregular or unethical loans. Directors, key managerial personnel and specified employees must recuse themselves from decisions involving their own interests or those of related parties.
Loans above materiality thresholds-₹25 crore for large banks, ₹10 crore for mid-sized and ₹5 crore for smaller banks-will require approval from the board or a dedicated committee. Banks must maintain updated lists of related parties, conduct quarterly compliance reviews, report any deviations to the audit committees and annually disclose loans to specified employees.
The norms bar lending to promoters of the bank, their relatives, and shareholders with 10% or more equity, as well as entities they control or influence, except for non-strategic institutional holdings without control. Listed banks must also comply with capital markets regulator Sebi’s disclosure rules and the RBI’s intra-group exposure limits.
The RBI clarified that equity investments are excluded from the scope of the new directions, while investments in debt instruments of related parties are covered.
Existing related-party transactions that do not comply with the revised norms can continue till maturity but cannot be renewed, repriced or enhanced unless they meet the new requirements.
“All existing transactions not complying with the regulatory prohibitions have been permitted to be continued till there is any enhancement, renewal, re-pricing, or any change in the terms and conditions of such transactions,” the central bank said.
The regulator also modified the definition of related parties, removing the ₹5 crore monetary threshold for shareholding and excluding nominee directors of other banks appointed by statutory bodies, but retained restrictions on its own nominee and independent directors.
Agricultural and allied loans to directors of rural cooperative banks will remain under statutory restrictions.
Non-compliance or circumvention will attract enforcement actions, including monetary penalties, provisioning requirements, forensic audits and business restrictions, the RBI said.
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