DRAFT FOR COMMENTS

RBI/2025-26/--
DOR.CRE.REC.No./00-00-000/2025-26

XX, 2025

Reserve Bank of India (Small Finance Banks - Concentration Risk Management) Directions, 2025

Introduction

The concentration of a bank’s exposures to a single borrower or a group borrower poses significant risks. The Reserve Bank of India (RBI), recognizing the imperative of robust risk management, therefore introduced prudential exposure limits in March 1989. These limits restricted banks’ exposures to individual borrower and group exposures to a certain percentage of capital funds, laying the foundation for mitigating concentration risk on assets side of their balance sheets. Cognizant of the concentration risk on the liability side of the balance sheet, the RBI introduced Prudential Limits for Inter-Bank Liabilities in 2007 further strengthening its comprehensive approach on concentration risk management. In addition to the prudential measures on concentrations to counterparties, and recognizing the need for sectoral diversification, the RBI has also mandated statutory exposure limits for capital market exposures and advised banks to establish their own sector-specific thresholds for other sectors.

Accordingly, in exercise of the powers conferred by Sections 21 and 35A of the Banking Regulation Act, 1949, and all the powers enabling Reserve Bank on this behalf, the RBI being satisfied that it is necessary and expedient in the public interest to do so, hereby, issues the Directions hereinafter specified.

Chapter I - Preliminary

A. Short Title and Commencement      

1. These Directions shall be called the Reserve Bank of India (Small Finance Banks - Concentration Risk Management) Directions, 2025.

2. These Directions shall become effective from the date of issue.

B. Applicability

3. These Directions shall be applicable to Small Finance Banks (hereinafter collectively referred to as 'banks' and individually as a 'bank').

C. Definitions

4. In these Directions, unless the context states otherwise, the terms herein shall bear the meaning assigned to them in the ensuing paragraphs.

5. “Aggregate Sanctioned Credit Limit” or “ASCL” means the aggregate of the fund-based credit limits sanctioned or outstanding, whichever is higher, to a borrower by the banking system. ASCL would also include unlisted privately placed debt with the banking system. A borrower is free to raise its funding needs from any source at any level and will not have any restriction on tapping the market mechanism for its funding needs before it reaches the ASCL.

Provided that ECB and Trade Credit raised from overseas branches of an Indian bank will count towards ASCL.

6. “Banking system” means all banks in India, including RRBs and co-operative banks and branches of Indian banks abroad.

7. “Capital Funds for exposure norms” shall comprise Tier I and Tier II capital as defined in the Reserve Bank of India (Small Finance Banks – Prudential Norms on Capital Adequacy) Directions, 2025, and as per the published accounts as on March 31 of the previous year. However, the infusion of capital under Tier I and Tier II, either through domestic or overseas issue, after the published balance sheet date will also be taken into account for determining the exposure ceiling. Other accretions to capital funds by way of quarterly profits, etc., would not be eligible to be reckoned for determining the exposure ceiling. Banks are also prohibited from taking exposure in excess of the ceiling in anticipation of infusion of capital at a future date.

8. “Credit Exposure” comprises all types of funded and non-funded credit limits, and facilities extended by way of equipment leasing, hire purchase finance and factoring services.

9. “Credit Exposure of Derivative Products” is the credit exposure arising on account of the interest rate and foreign exchange derivative transactions and gold. For the purpose of exposure norms, a bank shall compute its credit exposure of derivative products using the 'Current Exposure Method', as prescribed in the Reserve Bank of India (Small Finance Banks – Prudential Norms on Capital Adequacy) Directions, 2025 and reproduced below. Bilateral netting of Mark-To-Market (MTM) values arising on account of such derivative contracts shall not be permitted. Accordingly, a bank shall count its gross positive MTM value of such contracts for the purposes of capital adequacy as well as for exposure norms.

10. Current Exposure Method

(1) The credit equivalent amount of a market related off-balance sheet transaction calculated using the current exposure method is the sum of current credit exposure and potential future credit exposure of these contracts. While computing the credit exposure banks may exclude 'sold options', provided the entire premium / fee or any other form of income is received / realized.

(2) Current credit exposure is defined as the sum of the positive mark-to-market value of these contracts. The Current Exposure Method requires periodical calculation of the current credit exposure by marking these contracts to market, thus capturing the current credit exposure.

(3) Potential future credit exposure is determined by multiplying the notional principal amount of each of these contracts irrespective of whether the contract has a zero, positive or negative mark-to-market value by the relevant add-on factor indicated below according to the nature and residual maturity of the instrument.

(4) For contracts with multiple exchanges of principal, the add-on factors are to be multiplied by the number of remaining payments in the contract.

(5) For contracts that are structured to settle outstanding exposure following specified payment dates and where the terms are reset such that the market value of the contract is zero on these specified dates, the residual maturity would be set equal to the time until the next reset date. However, in the case of interest rate contracts which have residual maturities of more than one year and meet the foregoing criteria, the CCF or ‘add-on factor’ applicable shall be subject to a floor of one percent.

(6) No potential future credit exposure would be calculated for single currency floating / floating interest rate swaps; the credit exposure on these contracts would be evaluated solely on the basis of their mark-to-market value.

(7) Potential future exposures shall be based on effective rather than apparent notional amounts. In the event that the stated notional amount is leveraged or enhanced by the structure of the transaction, a bank shall use the effective notional amount when determining potential future exposure. For example, a stated notional amount of USD 1 million with payments based on an internal rate of two times the Base Rate would have an effective notional amount of USD 2 million.

11. “Exposure” shall include credit exposure (funded and non-funded credit limits) and investment exposure (including underwriting and similar commitments). The sanctioned limits or outstandings, whichever are higher, shall be reckoned for arriving at the exposure limit. However, in the case of fully drawn term loans, where there is no scope for re-drawal of any portion of the sanctioned limit, banks may reckon the outstanding as the exposure.

12. “Group”

(1) For the purpose of exposures other than intragroup exposures, Group shall have the following definition.

1. The concept of 'Group' and the task of identification of the borrowers belonging to specific industrial groups is left to the perception of the bank/financial institution. The bank / financial institution is generally aware of the basic constitution of its clientele for the purpose of regulating its exposure to risk assets. The group to which a particular borrowing unit belongs, may, therefore, be decided by it on the basis of the relevant information available with it, the guiding principle being commonality of management and effective control. In so far as public sector undertakings are concerned, only single borrower exposure limit would be applicable.
2. In the case of a split in the group, if the split is formalised the splinter groups will be regarded as separate groups. If a bank and financial institution has doubts about the bona fides of the split, a reference may be made to RBI for its final view in the matter to preclude the possibility of a split being engineered in order to prevent coverage under the Group Approach.

(2) For the purpose of intragroup transactions and exposures, Group shall have the following definition:

(i) “Group” may be defined as an arrangement involving two or more entities related to each other through any of the following relationships (subsidiary, associate, joint venture and related party as defined in the applicable accounting standards) and a 'group entity' as any entity involved in this arrangement.

(ii) Entities considered under the definition of ‘Group Entities’

1. Subsidiary – Parent.
2. Associate.
3. Joint Venture.
4. Related Party (including also include structures such as SPV / SIV / conduits based upon the actual ownership / control / significant influence / beneficial interest).
5. Direct or indirect ownership of 20 percent or more interest in the voting power of the enterprise. If exercise of voting power is restricted by statutory / regulatory provisions or other arrangements, then the actual ownership will be the determining factor. 
6. Common brand name.
7. Promoters of bank (Promoters and Promoter Group as defined in the Reserve Bank of India (Small Finance Banks – Licensing) Guidelines, 2025). 
8. Non-Operative Financial Holding Company (NOFHC) of bank.
9. An entity which has any of the first six relations, as above, with the promoters / NOFHC and their step-down entities.

(iii) Entities Exempted from the Definition of ‘Group Entities’

1. As the ownership of Public Sector Banks (PSBs) lies with the Government of India, all PSBs could be treated as group entities. However, the Government being a sovereign, its role as promoter and owner of the PSBs would not cause these entities to be treated as group entities. The other relationships as defined in the paragraphs 12 (2) (i) and (ii) may, however, be applicable for identifying entities of each public sector banking group separately.
2. Entities that are promoted by a financial sector intermediary including a bank to undertake financial market infrastructure activities would not be treated as group entities. Such institutions could be depositories, exchanges, clearing and settlement agencies, etc. that are supervised and regulated by the respective financial sector regulators. Exposures of a bank to these entities shall be subject to the extant exposure limits stipulated by the RBI.
3. The branches in other jurisdictions being part of a parent bank’s operations shall not be covered under the intra-group exposure limits stipulated in paragraph 69. Accordingly, an Indian bank’s exposure to its overseas branches and a foreign bank’s (operating as branches in India) exposure to its Head Office and overseas branches of the parent bank, except for proprietary derivative transactions undertaken with them, shall not be covered under the exposure norms. Exposures of a foreign bank (operating as branches) to its Head Office and other overseas branches of the parent bank would however continue to be subject to compliance with the Reserve Bank of India (Small Finance Banks – Prudential Norms on Capital Adequacy) Directions, 2025.

13. “Investment Exposure” comprises the investments in shares and debentures of companies, PSU bonds, and Commercial Papers (CPs).

(1) A bank’s investment in debentures / bonds / security receipts / pass-through certificates (PTCs) issued by a Securitisation Company (SC) / Reconstruction Company (RC) as compensation consequent upon sale of financial assets shall constitute exposure on the SC / RC. In view of the extraordinary nature of the event, banks / FIs will be allowed, in the initial years, to exceed the prudential exposure ceiling on a case-to-case basis.

(2) The investment made by a bank in bonds and debentures of corporates which are guaranteed by a Public Finance Institution (PFI) (as per list given in Annex I) will be treated as an exposure by the bank on the PFI and not on the corporate.

(3) Guarantees issued by the PFI to the bonds of corporates will be treated as an exposure by the PFI to the corporates to the extent of 50 percent, being a non-fund facility, whereas the exposure of the bank on the PFI guaranteeing the corporate bond will be 100 percent. The PFI before guaranteeing the bonds / debentures should, however, take into account the overall exposure of the guaranteed unit to the financial system.

14. “Market instruments” shall include bonds, debentures, redeemable preference shares and any other non-credit liability, other than equity.

15. “Net worth” shall comprise Paid-up capital plus Free Reserves including Share Premium but excluding Revaluation Reserves, plus Investment Fluctuation Reserve and credit balance in Profit & Loss account, less debit balance in Profit and Loss account, Accumulated Losses and Intangible Assets. No general or specific provisions should be included in computation of net worth. Infusion of capital through equity shares, either through domestic issues or overseas floats after the published balance sheet date, may also be taken into account for determining the ceiling on exposure to capital market. Banks should obtain an external auditor’s certificate on completion of the augmentation of capital and submit the same to the RBI (Department of Supervision) before reckoning the additions, as stated above.

16. “Normally Permitted Lending Limit” or “NPLL” means 50 percent of the incremental funds raised by the specified borrower over and above its ASCL as on the reference date, in the financial years (FYs) succeeding the FY in which the reference date falls. For this purpose, any funds raised by way of equity shall be deemed to be part of incremental funds raised by the specified borrower (from outside the banking system) in the given year.

Provided that where a specified borrower has already raised funds by way of market instruments and the amount outstanding in respect of such instruments as on the reference date is 15 percent or more of ASCL on that date, the NPLL will mean 60 percent of the incremental funds raised by the specified borrower over and above its ASCL as on the reference date, in the financial years (FYs) succeeding the FY in which the reference date falls.

Explanation: If a borrower becomes a 'specified borrower' during the last quarter of the FY 2016-17, say on March 31, 2017, then the disincentive mechanism will be applicable from April 1, 2017, for any borrowing from the banking system beyond the NPLL.

17.  “Qualifying Central Counterparty” or “QCCP” is an entity that is licensed to operate as a central counterparty (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. This is subject to the provision that the CCP is based and prudentially supervised in a jurisdiction where the relevant regulator / overseer has established, and publicly indicated that it applies to the CCP on an ongoing basis, domestic rules and regulations that are consistent with the CPSS-IOSCO Principles for Financial Market Infrastructures. The definition of QCCP for the purpose of these Directions is the same as that used for risk-based capital requirement purposes.

18. “Reference date” means the date on which a borrower becomes a ‘specified borrower’.

19. “Specified borrower” means a borrower having an ASCL of more than ₹10,000 crore at any time.

20. 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 or any statutory modification or re-enactment thereto or as used in commercial parlance, as the case may be.

Chapter II - Role of the Board

21. A list of the Board approved policies / limits to be formulated / set by the bank as well as reviews to be carried out by / put up to the Board are given below, with the details outlined in the ensuing paragraphs.

(1) Board-approved policies and limits

1. Policy to determine the size of the exposure to NABARD.
2. Limits in respect of various sub-segments under consumer credit, particularly limits for unsecured consumer credit exposures.
3. Policy fixing intra-day exposure limits to the capital markets.
4. Limits for outstanding lending transactions in the call / notice / term money market within the exposure limits prescribed for single / group obligors.
5. Policy on monitoring and management of intra-group transactions and exposures (ITEs).
6. Internal Ceiling, within the regulatory prescribed ceilings, for capital market exposure.
7. Country exposure limits in relation to the bank’s regulatory capital (Tier I + Tier II) with sub-limits, if considered necessary for products, branches, maturity, etc.
8. Regional exposure limits for country groups, at the discretion of its Board.

(2) Review by / reporting to the Board -The following reviews and reporting shall be put up / made to the Board:

1. Material ITEs.
2. Dealings with group entities inconsistent with benchmarks set for third party / non-group entities.
3. An annual review of the implementation of exposure management measures before the end of June.

Chapter III - Enhancing Credit Supply for Large Borrowers through Market Mechanism

A. Scope of application

22. The instructions provide a framework for addressing the concentration risk in the banking system arising from exposures to a single counterparty. The bank shall exercise due diligence while deciding the normally permitted lending limits for a single borrower to ensure that borrowers do not circumvent the aggregate sanctioned credit limit criteria by borrowing through dummy / fictitious group companies.

B. Prudential Measures

23. Incremental exposure of the banking system to a specified borrower beyond NPLL shall be deemed to carry higher risk, which shall be recognised by way of additional provisioning and higher risk weights as under. However, additional risk weight on incremental exposure merely on account of a borrower being classified as a specified borrower, should not normally result in change in credit rating.

(1) Additional provisions of three percentage points over and above the applicable provision on the incremental exposure of the banking system in excess of NPLL, which shall be distributed in proportion to each bank’s funded exposure to the specified borrower.

(2) Additional Risk weight of 75 percentage points over and above the applicable risk weight for the exposure to the specified borrower. The resultant additional risk weighted exposure, in terms of risk weighted assets (RWA), shall be distributed in proportion to each bank’s funded exposure to the specified borrower.

Note: For the purpose of determining exposure beyond NPLL, subscription by the banking system to market instruments shall be included.

24. Restructured accounts, where cut off ASCL is achieved / likely to be achieved due to additional finance extended under a restructuring scheme, in terms of the Reserve Bank of India (Small Finance Banks – Resolution of Stressed Assets) Directions, 2025, should not be subjected to disincentive mechanism for the incremental exposure.

Chapter IV - Exposure Norms

A. Exposure limits

A.1 Exposure limits for single and group obligors, and loan portfolio

25. A bank’s credit and investment exposure to a single and group obligor shall not be higher than 10 percent and 15 percent of its capital funds, respectively.

26. Additionally, the bank shall ensure that at least 50 percent of its loan portfolio should constitute loans and advances of up to ₹ 25 lakh on an ongoing basis. For assessing compliance with this requirement, the entire loan portfolio of the bank, as on the date of commencement of operations, would be considered and not just the fresh loans disbursed after the commencement of operations. Further, the criteria of upper limit of ₹ 25 lakh shall be borrower wise.

Note: The terms ‘borrower’ and ‘obligor’ have been used interchangeably in these Directions.

27. A bank’s credit exposure to a single and group obligor may exceed the exposure limits mentioned in paragraph 25 by an additional five percent and 10 percent, respectively (i.e. up to 15 percent and 25 percent of capital funds) provided the additional credit exposure is on account of extension of credit to infrastructure projects, as defined in Reserve Bank of India (Small Finance Banks – Credit Facilities) Directions, 2025.

28. A bank may, in exceptional circumstances, with the approval of its Board, consider enhancement of the exposure limits to a borrower (single as well as group) mentioned in paragraph 25 up to a further five percent of capital funds subject to the borrower consenting to the bank making appropriate disclosures in its Annual Reports.

29. The single borrower exposure limit in respect of Oil Companies who have been issued Oil Bonds (which do not have SLR status) by Government of India shall be 20 percent of the capital funds. In addition to this, banks may in exceptional circumstances consider enhancement of the exposure to the Oil Companies up to a further five percent of capital funds.

30. On account of a banks’ financing of acquisition of PSU shares under the Government of India disinvestment programmes, if any bank, is likely to exceed the regulatory ceiling of single / group borrower limit, RBI will consider relaxation on specific requests from a bank in the single / group credit exposure norms on a case by case basis, provided that the bank’s total exposure to the borrower, net of its exposure due to acquisition of PSU shares under the Government of India disinvestment programme, should be within the prudential single / group borrower exposure ceiling prescribed by RBI.

A.2 Exposures to and among certain specific counterparties

A.2.1 Exposures to Central Counterparties

31. A bank’s exposures to QCCPs related to clearing activities shall be exempted from the exposure ceiling of 10 percent of its capital funds applicable to single obligor. Clearing exposure would include trade exposure and default fund exposure as defined in Reserve Bank of India (Small Finance Banks – Prudential Norms on Capital Adequacy) Directions, 2025. Other exposures to QCCPs such as loans, credit lines, investments in the capital of CCP, liquidity facilities, etc. will continue to be within the existing exposure ceiling of 10 per cent of capital funds to a single obligor.

32. A bank’s exposure to non-QCCPs shall be subject to the exposure ceiling of 10 percent of its capital funds applicable to single obligor.

A.2.2 Exposures to NBFCs

A.2.2.1 Exposure to an NBFC excluding gold loan company

33.A bank’s loan size and investment exposure to a single NBFC and group NBFC obligor shall not be higher than 10 percent and 15 percent of its capital funds, respectively.  

A.2.2.2 Exposure to an NBFC predominantly engaged in lending against collateral of gold jewellery

34. A bank’s exposure to a single NBFC which is predominantly engaged in lending against collateral of gold jewellery (hereafter referred to as ‘gold loans’) i.e. such loans comprising 50 percent or more of its financial assets, shall not exceed 7.5 percent of the bank’s capital funds. However, this exposure ceiling may go up to 10 percent of a bank’s capital funds if the additional exposure is on account of funds on-lent by such NBFCs to the infrastructure sector.

A.3 Lending under Consortium Arrangements

35. The exposure limits shall also be applicable to lending under Consortium / Multiple Banking / Syndication Arrangements.

A.4 Bills discounted under Letter of Credit (LC)

36. In cases where the bills discounting / purchasing / negotiating bank and LC issuing bank are different entities, bills purchased / discounted / negotiated under LC (where the payment to the beneficiary is not made ‘under reserve'), will be treated as an exposure on the LC issuing bank and not on the third party / borrower. However, in cases where the bills discounting / purchasing / negotiating bank and LC issuing bank are part of the same bank, i.e. where LC is issued by the Head Office or branch of the same bank, then the exposure should be taken on the third party / borrower and not on the LC issuing bank. In the case of negotiations ‘under reserve', the exposure should be treated as on the borrower.

A.5 Exemptions

A.5.1 Rehabilitation of Sick / Weak Industrial Units

37. The ceilings on single/group exposure limits are not applicable to existing / additional credit facilities (including funding of interest and irregularities) granted to weak/sick industrial units under rehabilitation packages.

A.5.2 Food credit

38. Borrowers, to whom limits are allocated directly by the Reserve Bank for food credit, will be exempt from the ceiling.

A.5.3 Guarantee by the Government of India

39. The ceilings on single / group exposure limit would not be applicable where principal and interest are fully guaranteed by the Government of India.

A.5.4 Loans against Own Term Deposits

40. Loans and advances (both funded and non-funded facilities) granted against the security of a bank’s own term deposits should not be reckoned for computing the exposure to the extent that the bank has a specific lien on such deposits.

A.5.5 Exposure on NABARD

41. The ceiling on single / group borrower exposure limit will not be applicable to exposure assumed by a bank on NABARD. The bank is free to determine the size of the exposure to NABARD as per the policy framed by its Board of Directors. However, there shall not be any exemption from the prohibitions relating to investments in unrated non-SLR securities prescribed in terms of Reserve Bank of India (Small Finance Banks – Classification, Valuation and Operation of Investment Portfolio) Directions, 2025.

B. Exposure to Industry and certain Sectors

B.1 Internal Exposure Limits

B.1.1 Fixing of Sectoral Limits

42. In addition to limiting exposures to a single or group borrowers, a bank shall consider fixing internal limits for aggregate commitments to specific sectors to ensure diversified sectoral exposure. These sectoral limits shall be fixed based on the bank’s assessment of sectoral performance and associated risk perceptions. The bank shall review and revise these limits periodically, as deemed appropriate.

43. A bank shall have Board approved limits in respect of various sub-segments under consumer credit as may be considered necessary by the Board 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.

44. All top-up loans extended by a bank against movable assets which are inherently depreciating in nature, such as vehicles, shall be treated as unsecured loans for credit appraisal, prudential limits and exposure purposes.

B.1.2 Exposure to NBFC Sector

45. A bank may also consider fixing internal limits for its aggregate exposure to all NBFCs put together.

46. The bank should have an internal sub-limit on its aggregate exposures to all NBFCs, having gold loans to the extent of 50 percent or more of their total financial assets, taken together. This sub-limit should be within the internal limit, where fixed by the bank for its aggregate exposure to all NBFCs put together as mentioned in paragraph 45. 

47. A bank shall adhere to the intra-group limits in accordance with Guidelines on Management of Intra-Group Transactions and Exposures specified at paragraph 69 of these Directions.

B.1.3 Exposure to Real Estate

48. A bank shall be guided by the Reserve Bank of India (Small Finance Banks – Credit Facilities) Directions, 2025.

B.1.4 Bank’s Exposure to Capital Markets – Rationalisation of Norms

B.1.4.1 Components of Capital Market Exposure (CME)

49. A bank’s capital market exposures shall include both its direct exposures and indirect exposures. The aggregate exposure (both fund and non-fund based) of the bank to capital markets in all forms shall include the following:

(1) a bank’s direct investment in equity shares, convertible bonds, convertible debentures and units of equity-oriented mutual funds the corpus of which is not exclusively invested in corporate debt;

(2) advances by a bank against shares / bonds / debentures or other securities or on clean basis to individuals for investment in shares (including IPOs / ESOPs), convertible bonds, convertible debentures, and units of equity-oriented mutual funds;

(3) advances by a bank for any other purposes where shares or convertible bonds or convertible debentures or units of equity oriented mutual funds are taken as primary security;

(4) advances by a bank for any other purposes to the extent secured by the collateral security of shares or convertible bonds or convertible debentures or units of equity oriented mutual funds i.e. where the primary security other than shares / convertible bonds/convertible debentures / units of equity oriented mutual funds does not fully cover the advances;

(5) secured and unsecured advances by a bank to stockbrokers and guarantees issued on behalf of stockbrokers and market makers;

(6) loans sanctioned by a bank to corporates against the security of shares / bonds/ debentures or other securities or on clean basis for meeting promoter’s contribution to the equity of new companies in anticipation of raising resources;

(7) bridge loans to companies by a bank against expected equity flows / issues;

(8) underwriting commitments taken up by the bank in respect of primary issue of shares or convertible bonds or convertible debentures or units of equity oriented mutual funds;

(9) financing by a bank to stockbrokers for margin trading;

(10) a bank’s all exposures to Alternate Investment Funds; and

(11) Irrevocable Payment Commitments issued by a custodian bank in favour of stock exchanges.

B.1.4.2 Limits on a bank’s Exposure to Capital Markets

B.1.4.2.1 Statutory limit on shareholding in companies

50. In terms of Section 19(2) of the Banking Regulation Act, 1949, no banking company shall hold shares in any company, whether as pledgee, mortgagee or absolute owner, of an amount exceeding 30 percent of the paid-up share capital of that company or 30 percent of its own paid-up share capital and reserves, whichever is less, except as provided in sub-section (1) of Section 19 of the Act. Shares held in demat form should also be included for the purpose of determining the exposure limit. This is an aggregate holding limit for each company. A bank shall strictly adhere to these statutory provisions while granting any advance against shares, underwriting any issue of shares, or acquiring any shares on investment account or even in lieu of debt of any company.

B.1.4.2.2 Regulatory Limit

B.1.4.2.2.1 Solo Basis

51. The aggregate exposure of a bank to the capital markets in all forms (both fund based, and non-fund based) shall not exceed 40 percent of its net worth, as on March 31 of the previous year. Within this overall ceiling, the bank’s direct investment in shares, convertible bonds / debentures, units of equity-oriented mutual funds and all exposures to Alternate Investment Funds (AIFs) shall not exceed 20 percent of its net worth.

B.1.4.2.2.2 Consolidated Basis

52. The aggregate exposure of a consolidated bank to capital markets (both fund based and non-fund based) shall not exceed 40 percent of its consolidated net worth as on March 31 of the previous year. Within this overall ceiling, the aggregate direct exposure by way of the consolidated bank’s investment in shares, convertible bonds / debentures, units of equity-oriented mutual funds and all exposures to AIFs should not exceed 20 percent of its consolidated net worth.

Explanation: For the purpose of application of prudential norms on a group-wise basis, a ‘consolidated bank' is defined as a group of entities, which include a licensed bank, which may or may not have subsidiaries.

53. The above-mentioned ceilings (paragraphs 51 and 52) are the maximum permissible and a bank’s Board of Directors is free to adopt a lower ceiling for the bank, keeping in view its overall risk profile and corporate strategy. A bank shall adhere the ceilings on an ongoing basis.

54. As indicated in Reserve Bank of India (Small Finance Banks – Income Recognition, Asset Classification and Provisioning) Directions, 2025, the acquisition of shares due to conversion of debt to equity during a restructuring process, as permitted in the Master Direction ibid, will be exempted from regulatory ceilings / restrictions on Capital Market Exposures, investment in Para-Banking activities and intra-group exposure. However, these will require reporting to RBI (DoS, CO every month along with the regular DSB Return on Asset Quality) and disclosure by banks in the Notes to Accounts in Annual Financial Statements. Nonetheless, banks shall comply with the provisions of Section 19(2) of the Banking Regulation Act, 1949.

B.1.4.3 Items excluded from Capital Market Exposure of a bank

55. The following items should be excluded from the aggregate exposure ceiling of 40 percent of net worth and direct investment exposure ceiling of 20 percent of net worth (wherever applicable):

(1) A bank’s investments in own subsidiaries, joint ventures, sponsored RRBs and investments in shares and convertible debentures, convertible bonds issued by institutions forming crucial financial infrastructure such as National Securities Depository Ltd. (NSDL), Central Depository Services (India) Ltd. (CDSL), NSE Clearing Limited (National Clearing), National Stock Exchange (NSE), Clearing Corporation of India Ltd., (CCIL), a credit information company which has obtained Certificate of Registration from RBI and of which the bank is a member, Multi Commodity Exchange of India Ltd. (MCX), National Commodity and Derivatives Exchange Ltd. (NCDEX), Indian Commodity Exchange Limited (ICEX), National Commodities Management Services Ltd. (NCML), National Payments Corporation of India (NPCI) and Bombay Stock Exchange (BSE) and other All India Financial Institutions as given in Annex II. After listing, the exposures in excess of the original investment (i.e. prior to listing) shall form part of the CME.

(2) Tier I and Tier II debt instruments issued by other banks.

(3) Investment in Certificate of Deposits (CDs) of other banks.

(4) Investment by a bank in Preference Shares.

(5) Investment by a bank in non-convertible debentures and non-convertible bonds.

(6) Investment by a bank in units of Mutual Funds under schemes where the corpus is invested exclusively in debt instruments.

(7) Shares acquired by a bank as a result of conversion of debt / overdue interest into equity under the Reserve Bank of India (Small Finance Banks – Resolution of Stressed Assets) Directions, 2025.

(8) Term loans sanctioned by a bank to Indian promoters for acquisition of equity in overseas joint ventures / wholly owned subsidiaries under the refinance scheme of EXIM Bank.

(9) A bank may exclude its own underwriting commitments, as also the underwriting commitments of its subsidiaries, through the book running process, for the purpose of arriving at the CME of the solo bank as well as the consolidated bank.

(10) Promoters shares in the SPV of an infrastructure project pledged to the lending bank for infrastructure project lending.

(11) A bank’s exposure to brokers under the currency derivates segment.

B.1.4.4 Computation of exposure

56. For computing the exposure to the capital markets, loans / advances sanctioned and guarantees issued for capital market operations shall be reckoned with reference to sanctioned limits or outstanding, whichever is higher. However, in the case of fully drawn term loans, where there is no scope for re-drawal of any portion of the sanctioned limit, a bank shall reckon the outstanding as the exposure.

57. The bank’s direct investment in shares, convertible bonds, convertible debentures and units of equity-oriented mutual funds shall be calculated at its cost price.

58. Issue of Irrevocable Payment Commitments (IPCs): Only a custodian bank, who has a clause in the Agreement with clients giving the bank an inalienable right over the securities to be received as pay out in any settlement, shall be permitted to issue IPCs in favour of Stock Exchange. This requirement applies to all IPCs issued by a custodian bank irrespective of the client on whose behalf the IPC has been issued.  However, this clause will not be insisted upon if the transactions are pre-funded i.e., either clear INR funds are available in the customer’s account or, in case of FX deals, the bank’s nostro account has been credited before the issuance of the IPC.

59. The computation of CME for T+2 rolling settlement (T being the Trade day) and T+1 settlement for equities cycle shall be as follows:

(1) T+2 settlement cycle

1. The maximum intraday risk to the custodian bank issuing IPCs shall be reckoned as CME at 50 percent, on the assumption of downward price movement of the equities bought by FIIs / Mutual Funds on the two successive days from the trade date (T) i.e., on T+1 and T+2, of 20 percent each with an additional margin of 10 percent for further downward movement.
2. The potential risk on T+1 shall be reckoned at 50 percent of the settlement amount and this amount shall be reckoned as CME at the end of T+1 if margin payment / early pay in does not come in.
3. In case there is early pay in on T+1 (i.e., end of day (EOD) as per Indian Time), there will be no CME. Thus, funds received after EOD as per Indian Time, will not be reckoned as early pay-in on T+1. CME shall be computed accordingly.
4. In case margin is paid in cash on T+1, the CME would be reckoned at 50 percent of settlement price minus the margin paid. In case margin is paid on T+1 by way of permitted securities to FIIs / Mutual Funds, the CME would be reckoned at 50 percent of settlement price minus the margin paid plus haircut prescribed by the Exchange on the securities tendered towards margin payment.
5. The IPC shall be treated as a financial guarantee and a Credit Conversion Factor (CCF) as applicable in terms of the Reserve Bank of India (Small Finance Banks – Prudential Norms on Capital Adequacy) Directions, 2025, shall be applied. However, capital shall be maintained only on exposure which is reckoned as CME because the rest of the exposure is deemed to have been covered by cash / securities which are admissible risk mitigants. Thus, capital shall be maintained on the amount taken for CME and the risk weight thereon shall be in terms of the Reserve Bank of India (Small Finance Banks – Prudential Norms on Capital Adequacy) Directions, 2025. As the nature of IPC remains the same irrespective of the client for whom / on whose behalf the IPC has been issued, the measures prescribed for IPCs will be applicable to all IPCs issued by a custodian bank.

(2) T+1 settlement cycle

1. The maximum intraday risk to the custodian banks issuing IPCs would be reckoned as Capital Market Exposure (CME) at 30 percent of the settlement amount. This is based on the assumption of 20 percent downward price movement of the equities on T+1, with an additional margin of 10 percent for further downward movement of price.
2. In case margin is paid in cash, the exposure will stand reduced by the amount of margin paid. In case margin is paid by way of permitted securities to Mutual Funds / Foreign Portfolio Investors, the exposure will stand reduced by the amount of margin after adjusting for haircut as prescribed by the Exchange on the permitted securities accepted as margin.
3. Under T+1 settlement cycle, the exposure shall normally be for intraday. However, in case any exposure remains outstanding at the end of T+1 Indian Standard Time, capital will have to be maintained on the outstanding capital market exposure in terms of the Reserve Bank of India (Small Finance Banks – Prudential Norms on Capital Adequacy) Directions, 2025, as amended from time to time.
4. The underlying exposures of a bank to its counterparties, emanating from the intraday CME, will be subject to exposure limits prescribed in these Directions.

Explanation: If a client opts for margin funding and funds the margin on T+1 but has excess balance in his account at End of Day (EOD), setting off this balance against the IPC issued for the purpose of computation of CME is permitted only if the custodian banks have an inalienable right / right to set-off over this balance. Mere availability of funds in customer's account is not sufficient condition for setting off against liability of the IPC issued.

B.1.4.5 Intra-day Exposures

60. The bank shall put in place a Board-approved policy for fixing intra-day exposure limits to the capital markets and establish an appropriate system for ongoing monitoring of such limits.

B.1.4.6 Enhancement in limits

61. A bank having sound internal controls and robust risk management systems can approach the RBI for higher limits together with details thereof.

B.1.4.7 Exposure to Indian Joint Ventures / Wholly-owned Subsidiaries Abroad and Overseas Step-down Subsidiaries of Indian Corporates

62. A bank is allowed to extend credit / non-credit facilities (viz. letters of credit and guarantees) to Indian Joint Ventures / Wholly-owned Subsidiaries abroad and step-down subsidiaries which are wholly owned by the overseas subsidiaries of Indian Corporates. The bank is also permitted to provide at its discretion, buyer's credit / acceptance finance to overseas parties for facilitating export of goods & services from India. The above exposure will, however, be subject to a limit of 20 percent of the bank’s unimpaired capital funds (Tier I and Tier II capital) and would be subject to the conditions laid down in this regard in Reserve Bank of India (Small Finance Banks – Credit Facilities) Directions, 2025.

C. Financing of equities and investments in shares

63. The regulatory restrictions prescribed in Reserve Bank of India (Small Finance Banks – Credit Facilities) Directions, 2025 shall continue to apply on 

(1) advances against shares to individuals;

(2) financing of Initial Public Offerings (IPOs);

(3) bank finance to assist employees to buy shares of their own companies;

(4) advances against shares to Stock Brokers & Market Makers;

(5) bank financing to individuals against shares to joint holders or third party beneficiaries;

(6) advances against units of mutual funds;

(7) bank loans for financing promoters' contributions; and

(8) margin trading.

C.1 Cross holding of capital among banks / Financial Institutions

64. A bank shall be guided by Reserve Bank of India (Small Finance Banks – Prudential Norms on Capital Adequacy) Directions, 2025.

C.2 Prudential Regulation for Banks’ Investments

65. A bank shall be guided by the Reserve Bank of India (Small Finance Banks – Undertaking of Financial Services) Directions, 2025 in respect of its investments.

D. 'Safety Net' Schemes for Public Issues of Shares, Debentures, etc.

D.1 ‘Safety Net' Schemes

66. A bank or its subsidiary shall not offer ‘Safety Net’ or any such facilities, which would entail commitments to buy the securities from the investors at a pre-determined price during a stipulated period, irrespective of the prevailing market price.

D.2 Provision of buy back facilities

67. If a bank or its subsidiary provides a buy back arrangement to small investors subscribing to new issues, such an arrangement shall not provide commitments to buy the securities at pre-determined prices. Prices should be determined from time to time, keeping in view the prevailing stock market prices for the securities. Commitments should also be limited to a moderate proportion of the total issue in terms of the amount and should not exceed 25 percent of the owned funds of the bank / its subsidiary. These commitments shall also be subject to the overall exposure limits which have been or may be prescribed from time to time.

Chapter V - Prudential Limits on Intra-Group Transactions and Exposure

68. Exposure should include credit exposure (funded and non-funded credit limits) and investment exposure (including underwriting and similar commitments) as detailed in paragraphs 8 and 13 of these Directions. However, exposure on account of equity and other regulatory capital instruments should be excluded while computing exposure to group entities.

69. A bank shall adhere to the following intra-group exposure limits:

(1) Single Group Entity Exposure

1. five percent of Paid-up Capital and Reserves in case of non-financial companies (e.g., entities undertaking non-financial activities to provide support (IT services, back-office support, etc.) to financial entities of the group) and unregulated financial services companies; and
2. 10 percent of Paid-up Capital and Reserves in case of regulated financial services companies.

(2) Aggregate Group Exposure

1. 10 percent of Paid-up Capital and Reserves in case of all non-financial companies and unregulated financial services companies taken together; and
2. 20 percent of Paid-up Capital and Reserves in case of the group i.e. all group entities (financial and non-financial) taken together.

A. Intra-group Exposures Exempted from the Prudential Limits

70. The following intra-group exposures would be excluded from the stipulated limits:

(1) A bank’s exposure to other banks / financial institutions in the group in form of equity and other capital instruments are exempted from the limits stipulated in paragraph 69 (1) and (2). However, the instructions issued vide Reserve Bank of India (Small Finance Banks – Undertaking of Financial Services) Directions, 2025 and Reserve Bank of India (Small Finance Banks – Prudential Norms on Capital Adequacy) Directions, 2025, shall continue to apply on such exposure, subject to the prohibitions stipulated at paragraph 71.

(2) Inter-bank exposures among banks in the group operating in India. However, prudential limits in respect of outstanding borrowing transactions in call / notice money market for a bank shall continue to be governed by Master Direction - Reserve Bank of India (Call, Notice and Term Money Markets) Directions, 2021 dated April 01, 2021. For outstanding lending transactions in the call / notice / term money market, the limits shall be decided by the bank with the approval of its Board within the exposure limits prescribed for single / group obligors.

(3) Letters of Comfort issued by parent bank in favour of overseas group entities to meet regulatory requirements.

(4) Acquisition of shares due to conversion of debt to equity during a restructuring process subject to compliance with the provisions of Section 19(2) of the Banking Regulation Act, 1949.

B. Prohibited Exposures

71. Wherever a bank has been set-up under a NOFHC structure,

(1) The bank cannot take any credit or investments (including investments in the equity / debt capital instruments) exposure on NOFHC, its Promoters / Promoter Group entities or individuals associated with the Promoter Group.

(2) The bank cannot invest in the equity / debt capital instruments of any financial entities under the NOFHC.

C. Monitoring and Management of Intra-Group Transactions and Exposures (ITEs)

72. A bank shall put in place a Board-approved comprehensive policy on monitoring and management of ITEs. The policy should lay down effective systems and processes to identify, assess and report risk concentrations and material ITEs. While framing such policy, the Board shall take into consideration the risks posed to the bank on a standalone basis as a result of such intra-group activities and ensure that exposure to group entities are appropriately captured in measures of the bank’s exposures to group entities.

73. The policy should be reviewed at least annually. The policy should, at a minimum, include:

(1) System of regular review and reporting of material ITEs to the Board for facilitating clear understanding of the ITEs undertaken and the risks, if any, emanating there-from;

(2) A requirement that the bank should address risks arising from ITEs as strictly as it would address its risk exposures to a third party / non-group entity;

(3) Requirement that terms and conditions and credit standards of intra-group transactions are substantially the same, as those prevailing at the time for comparable transactions with or involving third party / non-group entities;

(4) The policy should specify the methodology to be followed for transfer pricing mechanism which could be applied to ensure the compliance of the arm’s length principle;

(5) Procedures for resolving any conflict of interest arising from intra-group transactions and exposures;

(6) Requirements relating to the transparency of third-party dealings associated with group entities. As a general rule, the bank should not undertake third-party dealings with the purpose of supporting the business of group entities unless they are carried out at arm’s length and in accordance with transfer pricing policy;

(7) The bank’s material intra-group transactions (both fund-based and non-fund based) should be examined by its internal auditors and the same should be checked by statutory auditors on a sample basis to ascertain that intra-group transactions undertaken:

1. comply with arm’s length principle,
2. are not detrimental to the bank’s interests,
3. are not meant for transferring the low quality or lowly rated assets,
4. are not a conduit for inappropriate transfer of capital / income to group entities, and
5. if resulting in breach of intra-group exposure norms, are promptly reported to the RBI in terms of paragraph 81 (4)  and

(8) Mechanism to ensure that ITEs do not lead to violation / circumvention of any regulatory, statutory or taxation laws.

74. Where the terms and conditions applying to a bank’s dealings with group entities are inconsistent with the benchmarks set for the similarly rated third party / non-group entities as required under paragraph 73 (3) , they shall be put up to the Board by the sanctioning authority with justifications. The same may be made available to the RBI at the time of inspection or whenever required.

75. A bank shall not enter into cross-default clauses whereby a default by a group entity on an obligation (whether financial or otherwise) is deemed to trigger a default of the bank on its obligations.

76. The bank should not buy / sell low quality asset (i.e., asset overdue / out of order or classified as NPA by the bank or by RBI or a restructured asset whose terms have been renegotiated or compromised due to the deteriorating financial condition of the borrower) from / to group entities except when they are done in accordance with the extant instructions of RBI, such as sale of Non-Performing Assets (NPAs) to Asset Reconstruction Companies, etc. Further, a low-quality asset should not be accepted as collateral for a loan or extension of credit to, or guarantee, acceptance, or letter of credit issued on behalf of the group entity. The bank shall also ensure that the transactions in low-quality assets with group entities, whether regulated or unregulated, are not done for the purpose of hiding losses or window dressing of balance sheets.

77. The bank shall ensure that it has adequate systems and controls in place for identifying, monitoring, managing and reviewing exposures arising from ITEs. The RBI may require a bank to put in place additional internal controls and a more robust risk monitoring, managing, reporting and review mechanism on ITEs.

D. Arrangements for Providing Support within the Group

78. A bank may provide support to its group entities so long as such support is undertaken in accordance with the prudential requirements set out in above paragraphs in relation to the policies governing bank’s dealings with group entities. Further, the bank should take ample and cautious measures to avoid giving any impression of its direct or indirect support to group entities unless there are formal legal arrangements in place providing for such support.

79. While assessing funding needs (especially under stressed situations), the bank should account for any funding or liquidity commitment (refer to Reserve Bank of India (Small Finance Banks – Asset Liability Management) Directions, 2025) provided to group entities (e.g. in the form of explicit guarantees or funding lines to be drawn in times of need) and prepare for any withdrawal of funding against those commitments by group entities. It should also analyse how the liquidity positions of group entities may affect its own liquidity, either through direct financial impact or through contagion when those entities are faced with liquidity crunch. Where there is reliance on funding support among group entities, it should take into account legal, regulatory or other limitations that may restrict group entities access to liquidity from it and vice versa in case of need.

80. The bank should establish internal limits on intra-group liquidity support to mitigate the risk of contagion from other group entities when these entities are under liquidity stress. It may put in place group-wide contingency funding plans, liquidity cushions and diversified funding to help group entities when liquidity problems in the group arise in line with the guidelines referred to in paragraph 79.

E. Reporting

81. A bank shall submit the following data / information to the RBI (DOS, CO) in the format and at the frequency prescribed by the DoS.

(1) The bank shall prepare and submit a list of the group entities. The list shall include all group entities established and operating in India and those overseas entities with which it has material transactions (threshold for ‘material’ transaction would be ₹10 crore for fund-based transactions and ₹25 crore for non-fund based transaction) during last three financial years. Any exclusion and / or inclusion of group entities should be reported at the earliest.

(2) The bank shall submit the details of intra-group support arrangements / agreements (e.g. a specific guarantee of the obligations of an entity in the group or a letter of comfort).

(3) The bank shall operate within the stipulated limits on an ongoing basis and report its intra-group exposures.

(4) If the intra-group exposures, either at the single entity level or at the aggregate level, exceed the prudential limits, the same should be reported at the earliest as also in the prescribed returns along with the reasons for breach of limits. In such situations, the bank cannot undertake any further intra-group exposure (at the entity or aggregate level, as the case may be) until it is brought down within the limit. Further, the bank, on satisfactory grounds, may be allowed an appropriate timeline within which it should comply with the stipulated limits. Failure to comply with the intra-group exposure limit within the given timeline would result in deduction of excess exposure amount from Common Equity Tier 1 (CET1) capital of bank until the limits are restored (If the limits are breached on account of mark-to-market values of derivatives position, the excess exposure would not be deducted from CET1 capital for a period of three months from the date of breach, Further, in case of a foreign bank, proprietary derivative transactions with parent and its overseas branches should also be taken into account while computing exposure). The frequent breaches may also lead to imposition of penalties on the bank by the RBI.

Chapter VI - Management of Country Risk Exposure

A. Risk Management

82. Indirect exposures shall be reckoned at 50 percent of the exposure for the purpose of these Directions. For the present, only in respect of the country, where a bank’s net funded exposure is two per cent or more of its total assets, the bank shall reckon indirect country risk for measuring, monitoring and controlling with that country risk.

83. Exposures shall be computed on a net basis i.e., gross exposure ‘minus’ collaterals, guarantees, insurance etc. Netting shall be permitted for cash collaterals, bank guarantees and credit insurance available in / issued by countries in a lower risk category than the country on which exposure is assumed.

B. Exposure limits

84. The Board of a bank shall set country exposure limits in relation to the bank’s regulatory capital (Tier I + Tier II) with sub-limits, if considered necessary for products, branches, maturity etc. The basis for setting the limits for the country / category shall be left to the discretion of the banks’ Boards. The country exposure limits set by the Board shall be reviewed periodically, and in any case, at least once a year.

85. Exposure limit for any country shall not exceed its regulatory capital, except in the case of insignificant risk category. In respect of foreign banks, the regulatory capital shall be the capital (Tier I + Tier II) held in their Indian books.

86. A bank may also set up regional exposure limits for country groups, at the discretion of its Board. The Board shall decide on the basis for grouping of countries and also lay down the guidelines regarding all aspects of such regional exposure limits.

87. Reserve Bank may, if it becomes necessary, prescribe a prudential aggregate country exposure limit for the higher risk categories.

Chapter VII - Prudential Limits for Inter-Bank Liabilities (IBL)

A. Prudential Measures

88. The following measures are prescribed to reduce the extent of concentration on the liability side of a bank:

(1) The IBL of a bank shall not exceed 200 percent of its networth as on 31st March of the previous year. However, a bank may, with the approval of its Board, fix a lower limit for its inter-bank liabilities, keeping in view its business model.

(2) The bank whose CRAR is at least 25 percent more than the minimum CRAR (9 percent) i.e. 11.25 percent as on March 31, of the previous year, are allowed to have a higher limit up to 300 percent of the net worth for IBL.

(3) The inter-bank liabilities in the form of Tier II bonds, Certificates of Deposits and Infrastructure bonds issued by banks shall be reckoned for the purpose of the IBL limit.

(4) The limit prescribed above will include only fund-based IBL within India (including inter-bank liabilities in foreign currency to banks operating within India). In other words, the IBL outside India are excluded.

(5) The above limits will not include collateralized borrowings under CBLO and refinance from NABARD, SIDBI etc.

(6) The existing limit on the call money borrowings prescribed by RBI in Master Direction - Reserve Bank of India (Call, Notice and Term Money Markets) Directions, 2021, dated April 1, 2021, will operate as a sub-limit within the above limits.

(7) A bank having high concentration of wholesale deposits should be aware of potential risk associated with such deposits and may frame suitable policies to contain the liquidity risk arising out of excessive dependence on such deposits.

Chapter VIII - Repeal and other provisions

A. Repeal and saving

89. With the issue of these Directions, the existing Directions, instructions, and guidelines relating to Concentration Risk Management applicable to Small Finance Banks stand repealed, as communicated vide notification dated XX, 2025. The Directions, instructions and guidelines repealed prior to the issuance of these Directions shall continue to remain repealed.

90. 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. 

B. Application of other laws not barred

91. 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

92. 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 RBI 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 RBI shall be final and binding.