The Reserve Bank of India issued revised amendments to its concentration risk management directions for small finance banks, updating the definition, measurement and prudential limits for banks’ capital market exposures and aligning the framework with the revised credit facilities directions. Capital market exposure (CME) is re-specified to cover both direct and indirect exposures, including investment exposures such as equity and preference shares, convertible instruments, units of non-debt mutual funds, REITs, InvITs and Alternative Investment Funds, as well as a wide set of credit and contingent exposures including loans for investment in shares and related instruments, loans secured by such instruments (as primary security or collateral), facilities to capital market intermediaries, financing to non-debt mutual fund schemes, promoter-share acquisition loans for certain infrastructure projects, underwriting commitments, irrevocable payment commitments issued to clearing corporations, and specified clearing member trade exposures. The revised framework sets ongoing prudential ceilings on both solo and consolidated bases of 40 percent of Tier 1 capital for aggregate CME and 20 percent of eligible capital base for direct investment exposures, and requires banks to set separate intra-day exposure sub-limits. It also updates exclusions and calculation rules, including specified carve-outs for certain intra-day mutual fund borrowing, exclusions for defined categories such as investments in designated critical financial infrastructure, and detailed computation and netting treatments for intra-day settlement-related exposures and irrevocable payment commitments, with permitted offsets by cash and government securities subject to conditions and haircuts under the capital adequacy directions. The revised amendments take effect from the date a bank implements the revised small finance bank credit facilities amendment directions or from July 1, 2026, whichever is earlier, and they supersede the earlier February 13, 2026 amendments.
Reserve Bank of India 2026-03-30
Reserve Bank of India revises small finance banks concentration risk rules by redefining capital market exposures and setting a 40 percent Tier 1 ceiling
The Reserve Bank of India has revised concentration risk management rules for small finance banks, broadening the definition of capital market exposure to include a wide range of direct and indirect investment, credit and contingent exposures, and aligning it with updated credit facilities directions. The regime sets prudential ceilings of 40 percent of Tier 1 capital for aggregate capital market exposure and 20 percent of the eligible capital base for direct investment exposures, mandates separate intra-day sub-limits, and updates exclusions and calculation and netting rules, including for irrevocable payment commitments and settlement-related exposures. The amendments take effect from the earlier of a bank’s implementation of the revised credit facilities directions or July 1, 2026, and supersede the February 13, 2026 amendments.