RBI Draft Rules on Related Party Lending for Banks and NBFCs
Why in the news
RBI issued a draft circular enlarging related-party lending norms for commercial banks and NBFCs, to improve governance and transparency from 1 April 2026.
Key facts
- Now covered: promoters, KMPs, shareholders above 5%, and entities with significant influence plus their relatives. Earlier only directors and their entities were restricted.
- One unified rulebook replaces over a dozen old circulars, curbing regulatory arbitrage.
| Bank asset size | Loan limit before board approval |
|---|---|
| Below ₹1 lakh crore | ₹5 crore |
| ₹1 to 10 lakh crore | ₹10 crore |
| Above ₹10 lakh crore | ₹50 crore |
Safeguards
- Interested directors or executives must recuse themselves.
- Quarterly internal audits and statutory auditor review of exposures.
- Public disclosure of top exposures and provisioning.
Exemptions and curbs
- Allowed: loans to public trusts with a director as trustee; director loans against government securities, life insurance or FDs (LTV up to 100%); employee-director staff loans; fully cash-collateralised guarantees.
- Foreign bank branches cannot lend to Indian firms where a director of the overseas parent has an interest.
Exam angle
- Effective date: 1 April 2026.
- Shareholding trigger: over 5%.