RBI Update - Reserve Bank of India (Small Finance Banks – Credit Risk Management) – Amendment Directions, 2025

The Reserve Bank of India has issued the Small Finance Banks – Credit Risk Management (Amendment) Directions, 2025, replacing Chapter XI of the original Directions with a new Chapter XIA governing the maintenance of cash credit (CC), current, and overdraft (OD) accounts. The revised framework seeks to strengthen credit discipline and enhance monitoring of fund flows, particularly for borrowers having exposure of ₹10 crore or more to the banking system. While CC accounts remain unrestricted as working capital facilities, current and OD accounts may be maintained only by banks holding at least 10% share in the borrower’s aggregate or fund-based exposure; others may operate only collection accounts, with strict norms requiring funds to be transferred to the designated account within two working days. Exemptions apply to accounts mandated under statute, FEMA, or operated by regulated entities, subject to usage restrictions.

The amended Directions also introduce enhanced compliance requirements, including half-yearly monitoring, CBS flagging of such accounts, and mandatory conversion or closure of ineligible accounts within defined timelines. Additional safeguards prohibit use of accounts for unregulated deposit-taking, payment services, or unauthorised third-party transactions, supported by systems to detect suspicious or pass-through activities. Term loan disbursements are to be made directly to beneficiaries to reduce diversion of funds. These amendments will come into effect from April 1, 2026, with an option for earlier voluntary implementation by Small Finance Banks.

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