RBI/DOR/2026-27/__
DOR.SOG(SPE).REC.No.__/xx.xx.xxxx/2026-27

June xx, 2026

Reserve Bank of India (All India Financial Institutions - Miscellaneous) Amendment Directions, 2026

The Reserve Bank has issued Reserve Bank of India (All India Financial Institutions - Miscellaneous) Directions, 2025 on November 28, 2025.

2. At present, certain governance requirements applicable to All India Financial Institutions (AIFIs) are part of the respective statutes. Given their unique mandates, AIFIs are exposed to a diverse range of risks emanating from their operations and the sectors they serve. With a view to strengthen the governance framework across AIFIs and to ensure greater clarity and consistency, it has been decided to prescribe certain provisions relating to the three control functions, viz., risk management, compliance and internal audit, including the roles and responsibilities of the heads of these functions.

3. Accordingly, in exercise of the powers conferred by Section 45 L of the Reserve Bank of India Act, 1934, and all other provisions / laws enabling the Reserve Bank of India in this regard, the Reserve Bank being satisfied that it is necessary and expedient in the public interest so to do, hereby issues the Directions hereinafter specified.

(1) These Directions shall be called the Reserve Bank of India (All India Financial Institutions - Miscellaneous) Amendment Directions, 2026

(2) These Directions shall come into effect from January 1, 2027.

(3) These Directions shall modify the Reserve Bank of India (All India Financial Institutions - Miscellaneous) Directions, 2025 in the manner as specified hereinafter.

(1) In Paragraph 4 of ‘Chapter I - Preliminary’ of the Directions, the following definition shall be deleted:

(1) ‘Director’ means a director appointed on the Board of an AIFI.

(2) In Paragraph 4 of ‘Chapter I - Preliminary’ of the Directions, the following definitions shall be inserted:

(1a) ‘Assurance’ means those activities which provide independent confirmation and confidence to the Board or its committees on the compliance of business functions with the internal control environment, as well as the applicable laws, rules and regulations.

(1b) ‘Chairperson’ means the Chairman / Chairman and Managing Director/ Part-time Chairman of the Board of Directors of an AIFI.

(1c) ‘Compliance’ means the state of being in accordance with the applicable laws, regulations, rules, directions given by the Reserve Bank, self-regulatory organisation standards, codes of conduct applicable to an AIFI’s activities and with the internal control systems laid down to comply with the foregoing.

(1d) ‘Compliance Culture’ means the set of values, attitudes, and behaviours that are promoted and demonstrated throughout the organisation ensuring that adherence to laws, regulations, internal standards, and ethical norms is routinely prioritised and embedded throughout the organisation’s operations and decision-making.

(1e) ‘Compliance Function’ means policies, processes, procedures, systems and personnel dedicated for Compliance.

(1f) ‘Compliance Risk’ means the risk of legal or regulatory sanctions, material financial loss, or loss to reputation an AIFI may suffer as a result of its failure to comply with laws of the land, regulations, rules, directions given by Reserve Bank, related self-regulatory organization standards, and codes of conduct applicable to its activities.

(1g) ‘Control Functions’ mean those functions that have a responsibility independent from business functions to provide objective assessment, reporting and/or assurance. This includes Risk Management Function, Compliance Function and Internal Audit Function.

(1h) ‘Director’ means a director appointed on the Board of an AIFI.

(1i) ‘Internal Audit Function’ means an activity that provides independent assurance to the Board or its committees on the quality and effectiveness of AIFI’s internal control, risk management and governance systems and processes.

(1j) ‘Internal Audit Plan’ means the document that defines the scope, coverage, areas, frequency, etc. of the internal audit.

(1k) ‘Internal Controls’ means a set of rules and controls governing an AIFI’s organisational/ operational structure, including reporting processes and functions.

(1l) ‘Risk Appetite’ means the aggregate level and types of risk an AIFI is willing to assume, decided in advance and within its risk capacity, to achieve its strategic objectives and business plan.

(1m) ‘Risk Limits’ means specific quantitative measures or limits that allocate the aggregate risk appetite across business functions, legal entities, specific risk categories, concentrations and other measures.

(1n) ‘Risk Management’ means the processes established to ensure that all risks and associated risk concentrations are identified, measured, analysed, managed, mitigated, monitored and reported on a timely as well as comprehensive basis.

(1o) ‘Risk Management Function’ means policies, processes, procedures, systems and personnel dedicated for Risk Management.

(3) After paragraph 10, the following Chapter and paragraphs shall be inserted:

Chapter IIIA - Control Functions: Risk Management, Compliance and Internal Audit

A. General

10A. An AIFI shall establish Risk Management, Compliance and Internal Audit functions, commensurate with its size, complexity and risk / business profile, headed by a Chief Risk Officer (CRO), Chief Compliance Officer (CCO) and Head of Internal Audit (HIA), respectively. In AIFIs which are a part of a group consisting of more than one financial entity, there may be a Group Chief Risk officer (GCRO) and a Group Chief Compliance Officer (GCCO), responsible for group level risk oversight / compliance and coordination.

10B. The AIFI shall have policies for each of the three control functions, viz., Risk Management, Compliance and Internal Audit, clearly articulating the objectives, roles and responsibilities of each function. The said policies shall be approved by the Board and reviewed periodically.

10C. The above functions shall:

(1) have the necessary authority and autonomy to discharge their responsibilities effectively.

(2) be independent of the business lines, free from conflicts of interest and business targets. Accordingly, they shall neither be involved in revenue generation nor have the remuneration of their staff linked to the business area being overseen.

(3) have unrestricted access to all business areas and records.

(4) not be outsourced, being core activities. However, external experts may be engaged under the oversight of CRO/CCO/HIA for specialised tasks without diluting the accountability of the functions.

10D. As part of the overall corporate governance framework, the Board is responsible for overseeing the control functions. The Board must set the ‘tone at the top’ and ensure that these functions are adequately resourced and maintain their independence. Further, the Board or RMCB/ACB, as applicable shall review control functions on an ongoing basis to ensure their continued relevance and effectiveness.

10E. The Risk Management and the Compliance Functions shall be subject to regular internal audit.

B. Terms of appointment of the CRO / CCO / HIA

10F. The terms of appointment of the CRO / CCO / HIA would be as follows:

(1) Appointing Authority and Rank: An AIFI shall appoint / designate suitably senior employees, not more than two levels below the MD&CEO, as CRO, CCO and HIA with the approval of the Board.

(2) Knowledge / Experience: CRO, CCO, and HIA shall possess adequate domain knowledge and relevant experience in the respective fields, commensurate with the size, complexity, and risk profile of the AIFI.

(3) Age: The age limits for CRO, CCO and HIA to hold office may be prescribed by an AIFI as part of its internal policy.

(4) Tenure: CRO, CCO and HIA shall ordinarily be appointed for a fixed tenure of not less than three years.

(5) Premature transfer / removal: Any transfer or removal of CRO, CCO and HIA prior to the completion of the stipulated tenure shall be subject to the approval of the Board.

(6) External Hiring: If considered necessary, suitably experienced and competent external candidates may be hired as CRO, CCO or HIA. However, consultants, advisors, part time auditors or individuals who are neither on the rolls of the AIFI/group entity nor have any contractual employer-employee relationship with the AIFI/group entity shall not be appointed/designated as CRO, CCO or HIA or Group CRO/CCO.

C. Independence of the CRO, CCO and HIA

10G. CRO, CCO and HIA shall function with independence, objectivity and free from conflict of interest. In particular, CRO, CCO and HIA shall:

(1) functionally report to the Board or the respective Board Committee and administratively report to MD & CEO.

(2) not be assigned business targets or have their remuneration linked to the performance of any business line.

(3) meet the Board or the respective Board Committee at least once in a quarter, without the presence of the Senior Management (including the MD & CEO / WTD). Even otherwise, they shall have direct and unrestricted access to the Board or the respective Board Committee to enable them to communicate concerns without any management interference.

(4) have their final performance review carried out by the Board or the respective Board Committee.

D. Risk Management Function

10H. The Board shall ensure an effective oversight over the AIFI’s risk management function. The Board / RMCB shall clearly define the role and responsibilities of the CRO, subject to the following:

(1) The CRO shall be primarily responsible for overseeing the development and implementation of the AIFI’s Risk Management Function. This shall include enhancements to risk management systems, policies, processes, quantitative models, reports, etc. to ensure that the AIFI’s risk management capabilities are effective, to fully support its strategic objectives and risk-taking activities.

(2) The CRO shall be an adviser to the authority to whom powers have been delegated to assume risk, e.g. sanctioning credit, making investments, etc. The advice of the CRO shall be supported with proper rationale.

(3) The CRO shall be an invitee to the meetings of the credit sanction / approval committee, without any voting rights in the proceedings thereof.

(4) Assumption of any risk / exposure, contrary to the advice of the CRO, without incorporating adequate risk mitigation measures, shall rest with the next higher authority in the delegation matrix, except where the risk assuming authority is the Board. All such cases shall be reported to the Board / RMCB.

10I. The Risk Management Function shall:

(1) be responsible for overseeing that the AIFI operates within its risk appetite and for assessing risks and related issues, independent of the business lines.

(2) implement an AIFI-wide risk strategy aligned with the Board-approved risk appetite, including clear risk limits and structured allocation of risk parameters to business units and risk takers.

(3) ensure robust information infrastructure to support accurate capital and liquidity assessments, granular risk monitoring at business-unit levels, and consolidated reporting across the AIFI to enable strategic planning and compliance with risk tolerance thresholds.

(4) continuously evaluate risk exposures against defined limits, challenge decisions proposed / taken by the business functions and promptly escalate critical issues to senior management and the Board / RMCB, ensuring timely adjustments to maintain alignment with risk appetite.

(5) enhance the capability of business line managers to identify and assess the risks critically rather than relying on the surveillance conducted by it.

E. Compliance Function

10J. The Board shall ensure an effective oversight over the AIFI’s compliance risk.

10K. The Senior Management shall be responsible for effective management of the AIFI’s compliance risk, including communication of the compliance policy throughout the AIFI and ensuring that it is observed in letter and spirit. Further, Senior Management shall be responsible for embedding compliance in the business strategy while ensuring risk of non-compliance are identified and mitigated, and for promoting compliance culture. Reviews and reporting should be regular and meaningful, with frequency based on the risk profile of the AIFI.

10L. An AIFI shall maintain a compliance programme supported by an annual compliance risk assessment placed before the Board or the ACB. The Compliance Function shall monitor and test compliance by inter-alia performing sufficient and representative compliance testing.

10M. The Compliance Function shall:

(1) ensure adherence to statutory and regulatory requirements, fair customer treatment, and sound market conduct. The CCO shall be the nodal point of contact between the AIFI and RBI.

(2) proactively identify, assess, and manage compliance risks, and provide independent assurance to the Board or ACB on the effectiveness of compliance policies, controls, and remediation of breaches, to be in state of compliance and for the improvement in compliance culture.

(3) vet internal policies and communications, act as a reference point for regulatory interpretation, and coordinate with other control/assurance functions such as Risk Management and Internal Audit, while maintaining its independence.

F. Internal Audit Function

10N. The Board shall ensure an effective internal audit framework, proportionate to the AIFI’s risk profile with adequate resources and independence. Staff posted to the Internal Audit Function should ordinarily have a tenure of at least three years.

10O. The Senior Management shall be responsible for ensuring effectiveness of the Internal Audit Function. It must facilitate the independence of audit, provide full access and act promptly on audit findings. The Senior Management shall ensure that internal auditors have sufficient knowledge and training appropriate to the entity’s risks.

10P. The Internal Audit Function shall provide independent evaluation of governance, risk management, compliance, internal controls, business lines, support functions, outsourced activities, etc., ensuring assurance across the entire organisation. All significant activities shall be audited over a defined cycle (ordinarily not exceeding three years), with high-risk areas reviewed more frequently.

10Q. The Internal Audit Function shall:

(1) follow systematic methodologies aligned with professional standards, using tools such as data analytics, thematic reviews, and automated monitoring, with proper documentation.

(2) coordinate with risk management, compliance, and external auditors while retaining independent judgment, ensuring clear distinction of responsibilities.

10R. AIFIs shall adopt a Risk-based Internal Audit (RBIA) approach, focusing on areas of higher risk, materiality, systemic relevance, and supervisory concerns as given in the Annex I.

G. Intimation to the Reserve Bank

10S. An AIFI shall ensure compliance with the following requirements:

(1) CRO: Any appointment (including interim appointment and re-appointment), premature transfer, removal or exit of the CRO, along with the reasons thereof, shall be reported to the Department of Supervision, Reserve Bank of India, within five working days. Intimation of appointment (including interim appointment and re-appointment) shall be accompanied with the CRO’s profile.

(2) CCO and HIA:

(i) In case of any appointment, re-appointment, interim appointment, premature exit, or change in tenure of the CCO or HIA, prior intimation of at least five working days shall be provided to the Department of Supervision.

(ii) Such intimation shall be accompanied by the candidate’s profile and a confirmation from the competent authority stating that the candidate is fit-and-proper.

(iii) The appointment may be communicated to the candidate by the AIFI only after the lapse of five working days from the date of receipt of intimation, by the Department of Supervision, provided no communication to the contrary is received from the Department of Supervision.