RBI/DOR/2025-26/305
DOR.CRE.REC.224/07-02-006/2025-26 November 28, 2025 Reserve Bank of India (Rural Co-operative Banks – Credit Risk Management) Directions, 2025 (Updated as on April 01, 2026) Introduction Rural Co-operative Banks (RCBs), in the course of financial intermediation, are exposed to various financial and non-financial risks, of which credit risk is the one of the most significant risks. If not managed effectively, credit risk may have ramifications for a range of other risk categories too. As credit exposures of RCBs encompass varied sectors, borrower types and products with their own idiosyncratic complexities as well as systemic implications due to interconnectedness among themselves, credit risk management of RCBs involve a range of prudential tools, including statutory and regulatory restrictions / prohibitions on certain activities. Recognising this, the Reserve Bank has, from time to time, issued guidelines to strengthen credit risk management practices. Accordingly, in exercise of the powers conferred by Sections 20, 21 and 35A read with Section 56 of the Banking Regulation Act, 1949; and all other provisions / laws enabling the Reserve Bank of India (hereinafter called the Reserve Bank) in this regard, Reserve Bank being satisfied that it is necessary and expedient in the public interest so to do, hereby, issues these Directions hereinafter specified. Chapter I - Preliminary A. Short title and Commencement 1. These Directions shall be called the Reserve Bank of India (Rural Co-operative Banks – Credit Risk Management) Directions, 2025. 2. These Directions shall come into effect immediately upon issuance. B. Applicability 3. These Directions shall be applicable to Rural Co-operative Banks (hereinafter collectively referred to as ‘RCBs’ and individually as a ‘RCB’). In this context, rural co-operative banks shall mean State Co-operative Banks (StCBs) and Central Co-operative Banks (CCBs), as defined in the National Bank for Agriculture and Rural Development Act, 1981. C. Definitions 4. 1[(1) In these Directions, unless the context otherwise requires: (i) 'Cash credit (CC)’ shall mean a facility, under which a customer is allowed an advance up to the credit limit against the security by way of hypothecation / pledge of goods, book debts, standing crops, etc. The facility is a running account and ’Drawing Power – DP’ is periodically determined with reference to the value of the eligible current assets. The outstanding amount is repayable on demand.] 2[(ia) ‘Contract or arrangement’ shall have the same meaning as specified in Section 188(1)(a) to (g) of the Companies Act, 2013. (ib) ‘Control’ shall have the same meaning as assigned to it under Section 2(27) of the Companies Act, 2013.] 3[(ii) ’Current Account’ shall mean a form of demand deposit account wherefrom withdrawals are allowed any number of times depending upon the balance in the account or up to a particular agreed amount and shall also be deemed to include other deposit accounts which are neither Savings nor Term deposit account.] 4[(iia) ‘Director of a RCB’ shall have the same meaning as defined in Explanation (b) to Section 20 of the Banking Regulation Act 1949 and would include a nominee director and an independent director (iib) ‘Entity’ shall mean a ‘person’ other than an individual and a Hindu Undivided Family. (iic) ‘Key Managerial Personnel (KMP)’ of a RCB shall mean all employees one level below the Board and any person designated as such by the Board. (iid) ‘Lending’ in the context of a related party shall mean extending funded or/ and non-fund-based credit facilities to related parties. While investments in debt instruments of related parties shall be covered for this purpose, equity investments shall be excluded.] 5[(iii) ‘Overdraft (OD)’ shall mean a facility, under which a customer is allowed to draw an agreed sum (credit limit) in excess of credit balance in their account. The overdraft facility may be secured (against fixed / term deposits and other securities, like small saving instruments, surrender value of insurance policies, etc.) or clean (i.e. without any security). The overdraft facility might be granted on their current account, savings deposits account or temporary overdraft on credit accounts.] 6[(iv) ‘Person’ shall have the same meaning as assigned to it under Section 3 (23) of Part I of Insolvency and Bankruptcy Code (IBC), 2016. (v) ‘Personal Loan’ shall have the same meaning as defined under Banking Statistics (Harmonised Definitions). (vi) ‘Promoter’ shall have the same meaning as assigned to it under Section 2(69) of the Companies Act, 2013. (vii) ‘Reciprocally Related Person’ means an individual who is either (a) a director (excluding independent director/ nominee director appointed by the Government or RBI or a statutory body) of another Co-operative bank or (b) relatives of such directors or (c) firms/companies in which such reciprocally related persons have interest/substantial interest. (viii) Related Party’ with respect to a RCB shall mean a related person, a reciprocally related person, or any of the following entities: (a) where a related person or a reciprocally related person is a partner, manager, KMP, director or a promoter; or (b) where a related person or a reciprocally related person is a shareholder with more than ten per cent of paid-up equity share capital; or (c) where a related person or a reciprocally related person is having control, whether singly or jointly with another person; or (d) where a related person or a reciprocally related person controls more than twenty per cent of voting rights on account of ownership or through a voting agreement or through any other arrangement; or (e) where a related person or a reciprocally related person has the power to nominate a director to its Board; or (f) which is accustomed to act on the advice, direction, or instruction of a related person or a reciprocally related person; or (g) where a related person or a reciprocally related person is a guarantor or a surety; or (h) where a related person or a reciprocally related person is a trustee or an author or a beneficiary and where the entity is in the form of a private trust; or (i) which is related to the related person or a reciprocally related person as a subsidiary or a parent company or a holding company or an associate or a joint venture. Provided that, nothing in sub-clause (e) above shall apply in cases where the authority to nominate a director arises exclusively from a lending or financing arrangement. Provided further that, nothing in sub-clause (f) above shall apply to the advice, directions or instructions given in a professional capacity. Provided further that, Government of India / State Government-owned or controlled entities shall not be treated as related parties to a government-owned bank just by virtue of the fact that the Government has the common ownership or control of such entities. (ix) ‘Related Person’ with respect to a RCB shall mean a person, and the relatives of such a person, where the person: (a) is either a director, a specified employee or a KMP of the bank; or (b) owns more than five per cent of paid-up equity share capital of the bank or can jointly with other shareholders exercise more than five per cent of the voting rights of the bank on account of either ownership or voting agreement or through shareholders’ agreement or through any other arrangement; or (c) can, through an agreement with the bank, nominate a director to its Board; or (d) is either singly or jointly, in control of the RCB. (x) ‘Relative’ with regard to a natural person shall have the same meaning as defined in Section 2(77) of the Companies Act, 2013 and rules framed therein. (xi) ‘Specified employees’ mean all employees of a RCB who are positioned up to two levels below the Board and any employee designated as such as per the RCB’s policy. (xii) ‘Substantial interest’ shall have the same meaning assigned to it under Clause (ne) of Section 5 of the Banking Regulation Act, 1949.] 7[(2)] All 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 and rules / regulations made thereunder, or any statutory modification or re-enactment thereto or in other relevant regulations issued by the Reserve Bank or Glossary of Terms published by Reserve Bank or as used in commercial parlance, as the case may be. Chapter II - Board Approved Policies 5. 8 [An RCB shall put in place a comprehensive Board approved policy on Credit Risk Management. The policy shall, inter alia, cover aspects related to lending to related parties, valuation of properties including empanelment of valuers and maintenance of cash credit accounts, current accounts and overdraft accounts. The afore-mentioned specific aspects and other areas of concern which need to be addressed in such policies are also detailed in the relevant paragraphs of these Directions.] Chapter III - Statutory Restrictions 6. Consequent upon amendment of Banking Regulation Act (BR Act), 1949 by the Banking Regulation (Amendment) Act, 2020, section 20 of the principal Act has become applicable to RCBs with effect from April 1, 2021. 7. Advances against Bank's Own Shares In terms of Section 20(1)(a) read with Section 56 of the BR Act, 1949, an RCB cannot grant loans and advances on the security of its own shares. 8. Advances to Banks’ Directors In terms of Section 20(1)(b) read with Section 56 of the BR Act, an RCB shall not enter into any commitment for granting any loan or advance to or on behalf of – (1) any of its directors, (2) any firm in which any of its directors is interested as partner, manager, employee or guarantor, or (3) any company not being a subsidiary of the RCB or a company registered under Section 8 of the Companies Act, 2013, or a Government company of which or the subsidiary or the holding company of which any of the directors of the RCB is a director, managing agent, manager, employee or guarantor or in which he holds substantial interest, or (4) any individual in respect of whom any of its directors is a partner or guarantor. 9 [8A. Clarifications on Applicability of Section 20(1)(b) of BR Act In exercise of the powers conferred by clause (a) of the Explanation under sub-section 4 of Section 20 of the Banking Regulation Act, 1949, read with Section 56 of the Act ibid, the following explanations are provided: (1) For the purposes of this Chapter of these Directions, co-operative entities, being distinct legal structures governed by their own statutes, shall not be construed as either a 'company' or a 'firm'. For removal of doubt, it is clarified that there would be no restriction on a State Co-operative Bank (StCB)’s credit facilities to Central Co-operative Banks (CCBs) and Primary Agricultural Credit Societies (PACS); and a CCB’s credit facilities to PACS due to application of Section 20(1)(b) of BR Act. (2) Provisions of paragraph 8 above would not apply in the following cases: (i) Credit facilities granted or commitment made by a RCB to a company where a director of the bank has substantial interest, if the advance was granted, or commitment was made, prior to the appointment of the said director on the Board of the bank. Provided that, till the director relinquishes the directorship of either the bank or the company, the bank shall not further renew such a facility on or after its contracted maturity or renewal date; enhance the limit; or change any of the terms of the facility before its maturity. (ii) Advances to a public trust, where a trustee is also a director of the lending bank. (iii) Loans and advances to all directors against government securities, life insurance policies or fixed deposit standing in their own name, where loan-to-value is not in excess of 100 per cent of the realizable value of such securities or specifically prescribed LTV ratio for loan against such a primary security by relevant Directions of the RBI, if any. (iv) Regular employee-related loans to staff directors on the Boards of RCBs. (v) Secured Personal loans to all Directors, including Chairman / MD / CEO and up to the same limits’ as permitted to an employee. Provided that, the credit facilities mentioned at sub-paras (iv) and (v) above shall be subject to the prudential ceilings and norms prescribed for various loans to individuals in Reserve Bank of India (Rural Co-operative Banks – Credit Facilities) Directions, 2025 and Reserve Bank of India (Rural Co-operative Banks – Concentration Risk Management) Directions, 2025. Provided further that, the purpose of loans mentioned at sub-paras (iv) and (v) above shall not be for investment in financial assets and the interest rate charged on all such loans shall not be lower than the rate charged to the employees. (vi) Non-Fund Based (NFB) facility on behalf of a director or his/her related party, provided that all such facilities shall be fully secured by cash collateral of equivalent or higher value. Provided that, cash collateral would not be mandatory in exposure arising on account of derivative transactions.] 9. Restrictions on Power to Remit Debts Section 20A(1) read with Section 56 of the BR Act, 1949 stipulates that an RCB shall not, except with the prior approval of the Reserve Bank, remit in whole or in part any debt due to it by - (1) any of its past or present directors, or (2) any firm or company in which any of its directors is interested as director, partner, managing agent or guarantor, or (3) any individual, if any of its directors is their partner or guarantor. 10. In terms of Section 20A(2) read with Section 56 of the Act ibid, any remission made in contravention of the provisions of sub-section (1) above shall be void and of no effect. Chapter IV - Regulatory Restrictions A. Financing Units with Negative Net worth / other irregularities 11. An RCB shall insist that borrower Units with Negative Net worth / other irregularities draw and implement a time-bound realistic plan for bringing themselves back to normalcy / viability in operations. RCBs shall monitor such plans closely, and pending such revival, any fresh finance shall be subject to closer scrutiny and case by case review/approval by the Board / Competent Authority. Further, any credit facility to such units shall be subject to obtention of Government Default Guarantee for non-credit cooperative societies /Government owned units, and against adequate collateral security for the units outside the co-operative fold. B. State Government Default Guarantee 12. In respect of sugar mill having negative net worth, the condition of State Government's irrevocable default guarantee in favour of the financing bank would have to be adhered to strictly, since negative net worth is a sign of weak financial position of the sugar mills and denotes complete erosion of owned funds of such units. As a result, these sugar mills are not in a position to provide requisite margin on pledge/hypothecation limits. In order to safeguard the interest of the financing bank, collateral security in the form of State Government guarantee is considered essential, besides the primary security in the form of sugar stock. This would also signify intention of continuing involvement of the State Government in the well-being of such units. C. Credit Dispensation to Certain Activities 13. Considering their resource pattern, priorities and the expertise available, an RCB shall not grant credit facilities for certain activities / institutions, such as real estate, housing (except to the extent permitted by Reserve Bank), infrastructure, power schemes / projects especially where State Government’s budgetary support is available, and NBFCs. 14. An RCB, in view of their primary role of lending for activities related to agriculture and rural development, shall desist from financing the commercial real estate (CRE) sector. As regards the credit facilities already extended to this sector, it should be ensured that such exposures are well secured and adequate provisioning made, wherever required, as per the existing prudential guidelines. It may also be ensured that the credit facilities are not renewed. However, RCBs are allowed to finance CRE-RH (CRE – Residential Housing) in terms of Reserve Bank of India (Rural Co-operative Banks – Credit Facilities) Directions, 2025, subject to limits prescribed in Reserve Bank of India (Rural Co-operative Banks – Concentration Risk Management) Directions, 2025. 15. An RCB shall not extend any financial assistance (including working capital funds) to NBFCs. D. Review of large advances by Board 16. An RCB shall continue to review the quality of their lending to non-credit cooperative societies / units outside the cooperative fold and individuals, on a quarterly basis and submit a Memorandum thereon to their Board. Such a review may cover, inter alia, details of sectoral / sub-sectoral credit limits / loans sanctioned, comments on operations on the major accounts on adequacy of margin, utilisation of the limit, end use of credit, irregularities, if any, in the operations of the unit or any other problems faced by the unit, etc., together with the RCB’s sectoral exposure and any other relevant issue. A copy of such review notes may be submitted to the relevant Regional Office of NABARD. In the case of the CCBs, a copy may also be given to the concerned StCB. 10 [E. Lending to Related Parties E.1 General Principles on Lending to Related Parties 16A. This Section sets out general principles and procedures to be followed for prudent risk management of loan to related parties, wherever allowed. 16B. The Board shall have the overall responsibility of ensuring that suitable mechanisms are put in place for implementation of the policy on lending to related parties by the bank. 16C. The credit policy (hereinafter called the policy) of a bank, as required in terms of the extant directions, shall contain specific provisions relating to ‘lending to related parties’ in accordance with the provisions of these Directions. The policy shall prescribe, inter alia, additional safeguards to address the risks emanating from lending to related parties. 16D. The policy shall also have specific provisions for lending to 'specified employees’ of the bank and their relatives. 16E. Further, the policy shall, (a) as a part of the whistleblowing mechanism, encourage employees to communicate confidentially and without the risk of reprisal, legitimate concerns, if any, about irregular, unethical, or questionable loans to related parties; and (b) eliminate quid pro quo arrangements, if any. 16F. The policy shall specify aggregate limits for loans towards related parties. Within this aggregate limit, there shall be sub-limits for loans to a single related party and a group of related parties. These limits shall be within the extant prudential exposure limits prescribed by the Reserve Bank. E.2 Regulatory Prohibitions 16G. RCB shall not undertake any lending transaction with the relatives of directors except credit facility fully secured by government securities, life insurance policies or fixed deposit standing in their own name. 16H. RCBs shall not undertake any lending transaction with the firms / companies / concerns, as well as subsidiaries / holding companies thereof, in which the relatives of directors are interested, or have given surety / guarantee or hold substantial interest or are in control of the company / firm. E.3 Materiality Threshold 16I. Loans to related parties, which are not prohibited in terms of provisions of this Chapter and Chapter III of these Directions, or which have been permitted under power exercised by the Reserve Bank under clause (a) of the Explanation under sub-section 4 of Section 20 of the Banking Regulation Act, 1949, except (i) credit facilities fully secured by cash or liquid securities and (ii) inter-bank loans, shall be subject to a materiality threshold as per the credit policy of the RCB, which shall not be higher than the following ceilings: | Asset Size of the RCB | Materiality Threshold Ceilings | | >₹10,000 crore | ₹75 lakh | | ₹3,000 crore - ₹10,000 crore | ₹50 lakh | | Upto ₹3,000 crore | ₹25 lakh | 16J. Materiality thresholds may vary for different categories of loans to related parties as per the RCB’s policy. 16K. All loans above the prescribed materiality threshold shall be sanctioned by Board of the RCB. E.4 Recusal of Interested Parties 16L. Directors, KMP, or ‘specified employees’ shall recuse themselves from deliberations and decision on loan proposals, or contracts and arrangements, involving themselves or their related parties. Such recusal shall also extend to deliberations and decisions relating to any subsequent material changes to the terms of such loans, including one-time settlements, write-offs, waivers, enforcement of security, implementation of resolution plans, etc. E.5 Monitoring of Loans to Related Parties 16M. RCB shall put in place a suitable mechanism for maintaining and periodically updating the list of all the related persons, and the related parties thereof, as well as the loan sanctioned by the bank to such related persons and related parties. 16N. Periodic reviews shall be conducted at quarterly or shorter intervals by internal auditors to check, inter alia, whether guidelines and procedures in relation to loans to related parties are being adhered to or not. 16O. Any deviation from the policy relating to lending to related parties and reasons thereof shall be reported to the Audit Committee of the Board. 16P. Any product, entity or structure formed with the objective of circumventing these Directions through various means, such as reciprocal lending or quid pro quo arrangements, and identified as such by the auditors of the bank or by the supervisory authority and investigating agencies shall always be treated as lending to related party. E.6 Enforcement Actions 16Q. Any non-compliance with and circumvention of these Directions shall result in supervisory and enforcement actions as deemed appropriate by the Reserve Bank. These actions may include imposition of monetary penalty, requirement of full provisioning, directions to conduct staff accountability exercises, forensic audits, and restrictions or any other supervisory and enforcement actions as deemed fit.] Chapter V - Valuation of Properties - Empanelment of Valuers 17. An RCB shall be guided by the following aspects while formulating a policy on valuation of properties and appointment of valuers: 18. Policy for valuation of properties (1) An RCB shall have a Board approved policy in place for valuation of properties including collaterals accepted for their exposures. (2) The valuation shall be done by professionally qualified independent valuers i.e. the valuer shall not have a direct or indirect interest. (3) An RCB shall obtain minimum two Independent Valuation Reports for properties valued at ₹50 crore or above. 19. Revaluation of bank’s own properties In addition to the above, an RCB may keep the following aspects in view while formulating policy for revaluation of their own properties: (1) As an RCB is permitted to include revaluation reserves as part of Capital in terms of Reserve Bank of India (Rural Cooperative Banks - Prudential Norms on Capital Adequacy) Directions, 2025, it is necessary that revaluation reserves represent true appreciation in the market value of the properties and banks have in place a comprehensive policy for revaluation of fixed assets owned by them. Such a policy shall inter alia cover procedure for identification of assets for revaluation, maintenance of separate set of records for such assets, the frequency of revaluation, depreciation policy for such assets, policy for sale of such revalued assets etc. (2) As the revaluation shall reflect the change in the fair value of the fixed asset, the frequency of revaluation shall be determined based on the observed volatility in the prices of the assets in the past. Further, any change in the method of depreciation shall reflect the change in the expected pattern of consumption of the future economic benefits of the assets. An RCB shall adhere to these principles meticulously while changing the frequency of revaluation / method of depreciation. 20. Policy for Empanelment of Independent valuers (1) An RCB shall have a procedure for empanelment of professional valuers and maintain a register / record of 'approved list of valuers'. (2) An RCB may prescribe a minimum qualification for empanelment of valuers. Different qualifications may be prescribed for different classes of assets (e.g. land and building, plant and machinery, agricultural land, etc.). While prescribing the qualification, an RCB shall take into consideration the qualifications prescribed under Section 34AB (Rule 8A) of the Wealth Tax Act, 1957. 21. An RCB shall also be guided by the relevant Accounting Standard issued by the Institute of Chartered Accountants of India. Chapter VI - Filing of Security Interest relating to Immovable (other than equitable mortgage), Movable, and Intangible Assets in CERSAI 22. The Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI), a Government Company licensed under section 8 of the Companies Act 2013 has been incorporated for the purpose of operating and maintaining the Central Registry under the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). 23. It is to be noted that initially transactions relating to securitization and reconstruction of financial assets and those relating to mortgage by deposit of title deeds to secure any loan or advances granted by banks and financial institutions, as defined under the SARFAESI Act, are to be registered in the Central Registry. The records maintained by the Central Registry will be available for search by any lender or any other person desirous of dealing with the property. Availability of such records would prevent frauds involving multiple lending against the security of same property as well as fraudulent sale of property without disclosing the security interest over such property. It may be noted that under the provisions of Section 23 of the SARFAESI Act, every transaction of security interest is required to be filed with the Registry. 24. The Government of India has issued a Gazette Notification dated January 22, 2016 for filing of the following types of security interest on the CERSAI portal: (1) Particulars of creation, modification or satisfaction of security interest in immovable property by mortgage other than mortgage by deposit of title deeds. (2) Particulars of creation, modification or satisfaction of security interest in hypothecation of plant and machinery, stocks, debts including book debts or receivables, whether existing or future. (3) Particulars of creation, modification or satisfaction of security interest in intangible assets, being know how, patent, copyright, trademark, license, franchise or any other business or commercial right of similar nature. (4) Particulars of creation, modification or satisfaction of security interest in any ‘under construction’ residential or commercial or a part thereof by an agreement or instrument other than mortgage. 25. RCBs are advised to file the charges relating to all current transactions with CERSAI on an ongoing basis. 11[ Chapter VIA - Maintenance of Cash Credit Accounts, Current Accounts and Overdraft Accounts by Banks 25A. Current Accounts, Cash Credit Accounts (CC), and Overdraft Accounts (OD) may all be used as transaction accounts by the customers, which raises concerns relating to credit monitoring by the lenders. With a view to strengthening credit discipline and facilitating better monitoring of transactions and utilisation of funds, this Chapter provides a framework for maintaining such accounts by banks. A. Cash Credit Accounts 25B. CC account is operationally different from a current account or OD account, given its primary nature as a working capital facility linked to the value of the borrower's current assets. A bank may provide such cash credit facilities as per the needs of the customer, without any restriction under this Chapter. B. Current Accounts and OD Accounts 25C. A bank may maintain current account or OD account without any restriction in cases where the aggregate exposure of the banking system to the customer is less than ₹10 crore. Explanation (1): ‘Banking System’ for the purpose of this Chapter shall include Commercial Banks (including Small Finance Banks, Local Area Banks, and Regional Rural Banks, but excluding Payments Banks), Urban Co-operative Banks and Rural Co-operative Banks (State Co-operative Banks and Central Co-operative Banks). Explanation (2): ‘Exposure’ for the purpose of this Chapter means the sum of all sanctioned fund-based credit facilities and non-fund-based facilities availed by the borrower from the banking system. 25D. In case of customers to whom the exposure of the banking system is ₹10 crore or more: (1) A bank may maintain current accounts or OD accounts as per the needs of the customer provided that the bank has either: (i) A minimum 10 per cent share in banking system’s aggregate exposure to the borrower; or (ii) A minimum 10 per cent share in banking system’s aggregate fund-based exposure to the borrower; Provided that, in case no bank within the banking system meets the above criteria, or only one bank meets the above criteria, two banks from the banking system having the largest exposures to the borrower may maintain current accounts or OD accounts. Provided further that, in case where only one bank within the banking system has any exposure to the borrower, one more bank of the customer’s choice within the banking system may maintain current accounts, subject to furnishing of a no-objection certificate (NOC) from the bank that has the exposure to the borrower. (2) A bank, not meeting the eligibility criteria at paragraph (1) above , may maintain only collection accounts. Explanation: ‘Collection Account’ for the purpose of this Chapter means a current account or OD account used primarily for receipts of cash inflows of the accountholder. Restricted payments / cash outflows from such account shall be subject to the conditions outlined in paragraph 25F of these Directions. 25E. With a view to ensuring credit discipline, lenders may include additional covenants as per their policies in their loan agreements in mutual agreement with borrowers. C. Collection Accounts 25F. Funds credited into a collection account shall be remitted within two working days of receipt of such funds to a CC account, current account, or OD account maintained with any bank in the banking system and designated by the borrower for this purpose (hereinafter referred to as ‘designated account’ in this Chapter). Any disbursement of overdraft limit from an OD account, which is in the nature of a collection account, shall be through the designated account only. Provided that statutory dues such as taxes, and dues, if any, to the bank maintaining the collection account may be debited before remitting the funds. D. Exemptions 25G. The restrictions placed in terms of paragraph 25D(1) of these Directions shall not be applicable to the accounts mentioned below: (1) Accounts opened as per the provisions of Foreign Exchange Management Act, 1999 (FEMA) and notifications issued thereunder, including accounts mandated for ensuring compliance under the FEMA framework. (2) Specific accounts or transactions which are stipulated under a statute or a specific instruction of a financial sector regulator, or the Central Government or a State Government. Explanation: ‘Financial sector regulator’ for the purpose of this Chapter refers to the Reserve Bank of India (RBI), the Securities and Exchange Board of India (SEBI), the Insurance Regulatory and Development Authority of India (IRDAI) and the Pension Fund Regulatory and Development Authority (PFRDA). (3) Accounts of entities regulated by a financial sector regulator, used for the purpose of carrying out their regulated activities. Provided that banks operating the above-mentioned exempted accounts shall ensure that transactions in such accounts are used only for the permitted / specified purposes. Surplus funds, if any, in such accounts shall be remitted to the designated account. E. Compliance Monitoring 25H. For the purpose of ensuring ongoing compliance with this Chapter, all banks shall monitor accounts maintained with them on a regular basis, and in any case at least once every half-year. 25I. In case it is observed that a bank is no longer eligible to maintain a current account or OD account opened in terms of: (1) paragraph 25C due to increase in exposure of banking system to the borrower up to or beyond the specified threshold of ₹10 crore; or (2) paragraph 25D(1), due to changes in the bank’s share in banking system’s aggregate exposure or in aggregate fund-based exposure to the borrower; or due to non-availability of NOC from the bank that has exposure to the borrower. then the bank shall notify the customer(s) concerned promptly, and in any case within one month from the date of observing such ineligibility, that the account must either be converted to a collection account or closed. The conversion or closure process, as the case may be, shall be completed within three months of observing such ineligibility. 25J. Accounts opened in terms of these Directions shall be appropriately flagged in the bank’s core banking solution (CBS) to ensure clear identification and to facilitate effective monitoring. Banks maintaining multiple accounts for a borrower shall ensure that such accounts and transactions and cashflows therein are monitored at the borrower level as also at the account level. F. Other Provisions 25K. A bank shall ensure that an accountholder utilise their account solely for transactions related to their authorised business or activities. These accounts shall not, under any circumstances, be used as pass-through channels for facilitating third-party transactions. Provided that entities expressly licensed or authorised by a financial sector regulator to facilitate third-party transactions may continue to do so. However, such activities shall strictly be limited to the specific transactions they are authorised to do and shall not extend beyond that scope. Any account that has been permitted to carry out such third-party transactions shall be appropriately flagged in the bank’s CBS to ensure clear identification and to facilitate effective monitoring. 25L. A bank shall ensure that an accountholder, who is not licensed or authorised by the Reserve Bank to accept deposits or to provide payment services, do not engage in such activities through accounts maintained with them. 25M. Robust monitoring systems shall be implemented to detect the above prohibited usage, including mechanisms to flag accounts exhibiting unusually high transaction volumes, frequent pass-through activities, or inconsistencies between the accountholder’s stated line of business and transactions carried out through the account. 25N. Term loans sanctioned by the bank shall preferably be remitted directly to the intended beneficiary’s account(s) or for the specified end-use, where such beneficiary is identifiable, rather than routing the funds through the borrower’s account.] Chapter VII - Repeal and other provisions A. Repeal and saving 26. With the issue of these Directions, the existing Directions, instructions, and guidelines relating to credit risk management as applicable to Rural Cooperative Banks, stand repealed, as communicated vide circular DOR.RRC.REC.302/33-01-010/2025-26 dated November 28, 2025. The Directions, instructions and guidelines already repealed shall continue to remain repealed. 27. 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. Further, the repeal of these directions, instructions, or guidelines shall not in any way prejudicially affect: (1) any right, obligation or liability acquired, accrued, or incurred thereunder; (2) any, penalty, forfeiture, or punishment incurred in respect of any contravention committed thereunder; (3) any investigation, legal proceeding, or remedy in respect of any such right, privilege, obligation, liability, penalty, forfeiture, or punishment as aforesaid; and any such investigation, legal proceedings or remedy may be instituted, continued, or enforced and any such penalty, forfeiture or punishment may be imposed as if those directions, instructions, or guidelines had not been repealed B. Application of other laws not barred 28. 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 29. 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 Reserve Bank 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 Reserve Bank shall be final and binding. (Vaibhav Chaturvedi)
Chief General Manager
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