The Reserve Bank of India issued amendment directions to the Small Finance Banks credit risk management framework, replacing the chapter on opening current and cash credit or overdraft accounts with a new framework on maintaining cash credit (CC), current and overdraft (OD) accounts. The revised approach links eligibility to the borrower’s aggregate exposure across the banking system to strengthen credit discipline and transaction monitoring. Under the new Chapter XIA, CC facilities remain unrestricted. Current and OD accounts may be maintained without restriction where aggregate banking system exposure to the customer is below INR 10 crore; where it is INR 10 crore or more, a bank may maintain current or OD accounts only if it has at least a 10% share of aggregate exposure or aggregate fund-based exposure, with fallback options allowing the two largest-exposure banks to maintain such accounts and specific no-objection certificate routes in limited cases. Banks not meeting the eligibility criteria may maintain only “collection accounts”, with funds required to be remitted within two working days to a borrower-designated CC, current or OD account, subject to limited debits for statutory dues and the maintaining bank’s dues. Exemptions apply for accounts opened under the Foreign Exchange Management Act framework, accounts or transactions mandated by statute or government or financial sector regulators, and accounts of regulated entities used for regulated activities, with requirements to restrict usage to permitted purposes and remit surplus to the designated account. The chapter also sets monitoring and control requirements, including at least half-yearly compliance reviews, conversion or closure timelines where eligibility is lost, core banking system flagging, prohibitions on pass-through third-party transactions except where expressly authorised by a financial sector regulator, restrictions on unlicensed deposit-taking or payment activities through accounts, and a preference for remitting term loans directly to identifiable beneficiaries. The amendments come into force from April 1, 2026, and banks may choose to implement them in full earlier.
Reserve Bank of India 2025-12-11
Reserve Bank of India amends small finance bank credit risk rules with INR 10 crore threshold and 10% exposure tests for current and overdraft accounts
The Reserve Bank of India has amended the credit risk management framework for Small Finance Banks, introducing a new framework for maintaining cash credit, current, and overdraft accounts. The revised rules link account eligibility to a borrower's aggregate exposure across the banking system, with criteria for maintaining current and overdraft accounts based on exposure thresholds. Exemptions and monitoring requirements are outlined, with the amendments effective from April 1, 2026, though banks may implement them earlier.