RBI Amends Financial Services Directions to Segregate Core and Non-Core Activities

Press Release: 2025-2026/1640; Dated: 05.12.2025

1. Background

The Reserve Bank of India (RBI) has issued amendments to the Undertaking of Financial Services Directions, following the incorporation of industry and stakeholder feedback received on the draft framework issued in October 2024. These updated directions are applicable to multiple regulated entities and aim to strengthen corporate governance, prudential risk management, and structural clarity in financial services.

2. Objective of the Amendments

The amendments primarily focus on:

• Segregating core banking and lending activities from non-core businesses
• Minimising exposure to risk-bearing investments or commercial ventures unrelated to financial intermediation
• Enhancing internal controls, transparency, and risk containment structures
• Preventing group entities from undertaking complex or speculative activities without appropriate regulatory safeguards

RBI’s intent is to ensure that regulated entities do not divert financial capacity or capital buffers away from their principal financial service functions, thereby preserving systemic stability.

3. Regulated Entities Covered

The revised directions apply to a wide range of RBI-supervised intermediaries:

1. Commercial Banks
2. Small Finance Banks
3. Payments Banks
4. Non-Banking Financial Companies (NBFCs)
5. Non-Operative Financial Holding Companies (NOFHCs)

Each segment faces customised obligations and boundaries depending on its licensing conditions, permissible activities, and risk appetite.

4. Core vs. Non-Core Activity Segregation

4.1 Core Activities

Entities must prioritise their principal financial services, including:

• Deposit-taking
• Lending and credit intermediation
• Payments and settlement services
• Risk transfer and customer-facing financial products

4.2 Non-Core Activities

Entities are restricted or closely monitored when engaging in:

• Commercial business ventures
• Real-estate, manufacturing, or trading activities
• Speculative or risk-bearing investments that are not integral to financial intermediation

The amendments reinforce that regulated entities must ring-fence financial stability by keeping non-core business risks separate and adequately capitalised.

5. Feedback and Finalisation Process

The directions were refined after extensive industry consultation, where stakeholders highlighted:

• Overlaps in business structures
• Group-level risk exposures
• Need for operational clarity on activity classification
• Impact on subsidiaries and holding companies

RBI has harmonised the framework, offering clearer eligibility norms, compliance expectations, and governance standards.

6. Compliance Expectations

Entities must ensure:

• Proper internal governance structures to segregate businesses
• Adequate board oversight and risk committees
• Transparent reporting of intragroup transactions and exposures
• Timely restructuring of non-compliant business lines or subsidiaries

Failure to comply may invite supervisory actions, capital penalties, or restrictions on expansion activities.

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