The Reserve Bank of India has issued the Reserve Bank of India (Commercial Banks – Undertaking of Financial Services) (Amendment) Directions, 2025, effective December 05, 2025, modifying the master regulatory framework governing financial services undertaken by commercial banks and their group entities. These amendments follow a review of earlier 2016 guidelines and stakeholder feedback on the draft circular released on October 04, 2024. Key changes are as under:
Expanded Applicability
The Directions now extend specified provisions to all NBFCs and Housing Finance Companies that are group entities of a bank operating in India.
Updated Definitions
Revised definitions introduced for Agency Business, Referral Services, and a new definition for Group Entity. Agency arrangements are restricted to regulated financial products, while referral arrangements cannot involve integration with bank systems or branding.
Segregation of Activities within Bank Groups
Core banking activities, including acceptance of deposits, must be undertaken only departmentally. Activities such as mutual funds, insurance, pension fund management, PMS, and broking must be carried out through group entities only.
Additional Conditions for NBFC/HFC Lending Arms
NBFC group entities must comply with Upper Layer NBFC regulations (excluding listing) and adhere to restrictions on:
- Advances against parent bank’s shares
- Loans to directors/relatives
- Financing promoter’s contribution
- Land acquisition financing
- Limits on loans against shares, IPO financing, ESOP funding
Revised Investment Framework
- Bank’s investment in any entity capped at 10% of its capital and reserves.
- Aggregate investment limited to 20%.
- Investments of 20% or more in an entity by the bank group require prior RBI approval.
- Special norms updated for AIFs, REITs, and InvITs.
Restrictions Relating to AIF Investments
- Banks prohibited from investing in Category III AIF schemes.
- Category I and II AIF investments allowed within capped limits and approval thresholds.
- Banks must ensure no regulatory circumvention via AIF exposures.
Governance, Risk, and Compliance Requirements
Banks must establish comprehensive policies for each business line, including risk identification, mitigation, and capital allocation. Breaches must be reported through the PRAVAAH portal within 15 days.
Compliance Timelines
- Banks not aligned with para 18 must cease new business in that segment from April 1, 2026.
- Compliance status due by March 31, 2026.
- Full compliance required by March 31, 2028.
Other Notable Amendments
- PMS and similar services are allowed only through group entities, with prior RBI approval.
- Banks are permitted to act as Professional Clearing Members in the equity derivatives segment.
Link – https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=13209&Mode=0
