RBI Issues Final Norms On Lending To Related Parties, Effective April 1, 2026

New Delhi, Jan 6 (KNN) The Reserve Bank of India (RBI) has issued final amendment directions on lending to related parties, incorporating stakeholder feedback on the draft guidelines released in October 2025. 

The revised, principle-based framework will come into force from April 1, 2026.

The directions seek to harmonise and rationalise existing norms governing lending by regulated entities (REs) — including banks, NBFCs, cooperative banks and all-India financial institutions — while providing greater clarity and consistency.

Scope, Exemptions and Transition

Equity investments in related parties have been excluded from the framework, though investments in debt instruments remain covered. 

The RBI has exempted NBFCs that do not accept public funds and have no customer interface, as well as Core Investment Companies that largely lend within their group. Existing prohibitions on lending by all-India financial institutions to directors and related entities remain unchanged.

To enable smooth implementation, existing non-compliant exposures may continue until they are enhanced, renewed, repriced or otherwise modified, at which point full compliance will be required. This replaces the earlier proposal of a fixed one-year run-off period.

Disclosure, Governance and Approvals

The framework introduces enhanced disclosure requirements, mandating REs to report the aggregate value of contracts and arrangements with related parties in their financial statements. Contracts have been retained within the disclosure ambit due to their potential misuse.

The term “senior officer” has been replaced with “specified employee,” defined as an employee up to two levels below the board. For foreign bank branches in India, statutory lending restrictions will apply to directors at both local and global levels in line with the Banking Regulation Act, 1949.

Exposure Limits and Materiality Thresholds

The RBI has aligned terminology with accounting standards by replacing “substantial interest” with “significant influence and control.” Passive, non-strategic shareholdings by mutual funds, banks, insurance companies and foreign portfolio investors are excluded, provided there is no exercise of control.

A tiered materiality framework has been introduced. For banks, thresholds range from Rs 25 crore for assets above Rs 10 lakh crore to Rs 5 crore for assets below Rs 1 lakh crore. For NBFCs, limits range from Rs 10 crore for Upper and Top Layers to Rs 1 crore for Base Layer entities. 

Exposures beyond these thresholds require approval of the Board or a designated Committee on Lending to Related Parties. 

Fully secured loans against government securities, fixed deposits or life insurance policies are exempt from board approval if the loan-to-value ratio does not exceed 100 per cent.

Cooperative Banks and Definition of Related Parties

For cooperative banks, norms are largely aligned with existing provisions, with tier-based thresholds for board approvals. For rural cooperative banks, the RBI has retained the legislative intent of the Banking Regulation Act and declined to exempt loans for agricultural and allied activities extended to directors.

The definition of related parties has been expanded and aligned with the Companies Act, 2013 and relevant Insolvency and Bankruptcy Code provisions. 

It now includes promoters, directors, key managerial personnel and their relatives, shareholders with over 10 per cent equity, entities under significant influence or control, certain trust structures, and reciprocally related persons in the case of banks. Professional advice rendered purely in a professional capacity has been excluded.

(KNN Bureau)