The Reserve Bank of India has issued the Reserve Bank of India (Small Finance Banks – Undertaking of Financial Services) (Amendment) Directions, 2025, effective December 5, 2025. These amendments update the Master Directions issued on November 28, 2025 and aim to streamline governance, clarify business structures, and strengthen prudential norms for Small Finance Banks (SFBs).
Key Highlights
Revised Definitions & Clarity on Arrangements
Agency Business redefined to permit SFBs to act as agents for regulated third-party financial products, covering marketing, sales, grievance redressal and after-sale services.
Referral Services clarified — banks can only refer customers without involvement in TPPS processes; bank name cannot appear on TPPS documents; no integration of TPPS processes with bank platforms except redirect links.
New sub-paragraph added to renumber “Assignee” as 1A.
Undertaking Financial Services
Banks may undertake activities under Section 5(b) and 6(1) of the BR Act departmentally.
Prior RBI approval required for any new business not covered under these Directions.
No subsidiaries may be set up for non-banking financial services.
Businesses such as mutual funds, insurance, pension fund management, portfolio management, investment advisory, and broking must only be undertaken through NOFHC-held group entities, not departmentally.
Investment Limits – Strengthened Prudential Rules
Single Entity Limit: Equity investment capped at 10% of bank’s paid-up capital & reserves.
Aggregate Limit: Total equity investments capped at 20%, excluding:
HFT category investments (within BR Act limits)
Up to 30% equity acquired through debt restructuring or to protect bank’s interest.
Investment below 20% allowed without approval subject to CRAR and profitability tests.
Investment ≥20% requires prior RBI approval.
Banks may invest 20–30% in non-financial entities only in limited cases (permissible business or debt restructuring).
Restrictions on AIF/REIT/InvIT Investments
Bank contribution to Category I & II AIFs capped at 10% of fund corpus.
No investment permitted in Category III AIFs.
Exposure through AIFs must not circumvent banking regulations.
Investment in REITs/InvITs capped at 10% of unit capital, within overall 20% net-worth limit.
Capital Requirements & Reporting
ICAAP must capture capital needs for AIF exposures and equity risks.
Breaches must be reported via PRAVAAH within 15 days.
Banks not currently compliant must submit an action plan by March 31, 2026 and achieve full compliance by March 31, 2028.
Professional Clearing Member (PCM)
SFBs are permitted to become PCM for equity derivatives on SEBI-recognized stock exchanges, with conditions identical to commodity derivatives.
Link – https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=13210&Mode=0
