The Reserve Bank of India issued amendments to its concentration risk management directions for small finance banks, updating definitions and overhauling the prudential framework for capital market exposures (CME). The revisions follow the issuance of the Reserve Bank of India (Small Finance Banks – Credit Facilities) Amendment Directions, 2026 and reset how CME is defined, capped and calculated, including board-level requirements for intraday limits. CME is redefined to include both direct and indirect exposures (fund-based and non-fund-based), spanning investment exposures (including equity and preference shares, convertible instruments, units of non-debt mutual funds, REITs, InvITs and alternative investment funds) and a wide set of credit exposures, such as loans for investing in shares and similar instruments, facilities secured by such instruments (as primary security or collateral), credit to capital market intermediaries, financing to non-debt mutual funds, underwriting commitments, irrevocable payment commitments issued by custodian banks, and certain clearing member client trade exposures. The amended ceilings require aggregate CME (solo and consolidated) to remain within 40 per cent of Tier 1 capital, while direct capital market exposure from investment exposures is capped at 20 per cent of eligible capital base, and banks must also set separate intraday sub-limits for single-counterparty and aggregate intraday exposures. A revised set of exclusions applies (including specified critical financial infrastructure entities listed in an updated annex, certain bank and all-India financial institution instruments, certificates of deposit, and limited recognition of own underwriting commitments through book-running up to 70 per cent of the credit equivalent amount), and exposures are to be computed using cost for direct investments and generally the higher of sanctioned limit or outstanding for credit exposures, with specified treatments for QCCP-related intraday limits and for irrevocable payment commitments under T+1 and T+2 settlement cycles; CME may be offset by cash and government securities subject to prescribed haircuts. The amendments take effect from the date a bank decides to implement the Reserve Bank of India (Small Finance Banks – Credit Facilities) Amendment Directions, 2026 or from April 1, 2026, whichever is earlier.
Reserve Bank of India 2026-02-13
Reserve Bank of India amends small finance banks’ concentration risk rules with a revised capital market exposure framework and a 40 per cent Tier 1 ceiling
The Reserve Bank of India has amended its concentration risk management directions for small finance banks, redefining capital market exposures (CME) and setting new caps and calculation methods, including board-level requirements for intraday limits. Effective from the date of implementation or April 1, 2026, whichever is earlier, the amendments cap aggregate CME at 40% of Tier 1 capital and direct investment exposures at 20% of the eligible capital base.