RBI Seeks Feedback on Lending to Related Parties Norms

Press Release: 2025-2026/1249; dated: 03.10.2025

1. Introduction

The Reserve Bank of India (RBI) has issued a draft of the “Lending to Related Parties Directions, 2025” for public consultation. The draft seeks to establish a unified regulatory framework governing lending by banks, Non-Banking Financial Companies (NBFCs), and other regulated entities to their related parties. The initiative aims to enhance transparency, minimize conflicts of interest, and ensure consistent governance standards across India’s financial system.

2. Objective and Scope of the Draft Directions

The proposed framework consolidates existing norms on lending to related parties, aligning them with modern governance practices and international standards. It applies to scheduled commercial banks, cooperative banks, and NBFCs, creating uniformity in how exposures to related parties are identified, monitored, and approved. The RBI’s move underscores its intent to prevent misuse of funds and strengthen safeguards against connected lending risks.

3. Key Provisions Introduced

The draft directions introduce several significant reforms. These include materiality thresholds for board approval of related-party transactions, ensuring that only substantial exposures require direct oversight. The draft also clarifies that independent directors of other banks will not be classified as related parties—thereby reducing unnecessary compliance burdens. Additionally, certain transactions are exempted from specific provisions of the Banking Regulation Act, offering flexibility to institutions while maintaining prudential safeguards.

4. Reporting and Compliance Requirements

A major highlight of the draft is the introduction of enhanced reporting and disclosure requirements. Banks and NBFCs will be required to maintain comprehensive records of lending to related parties and report them to the RBI at prescribed intervals. The aim is to improve supervisory visibility and ensure that related-party exposures are subject to robust internal control and audit mechanisms. Institutions are also expected to adopt risk management frameworks that align with the revised directions.

5. Conclusion and Public Consultation

The RBI has invited public comments and stakeholder feedback on the draft “Lending to Related Parties Directions, 2025” by October 31, 2025. Suggestions may be submitted through the RBI’s official website or via email. Once finalized, the framework is expected to significantly enhance corporate governance, accountability, and transparency in lending practices within India’s financial sector. The move marks another step by the RBI toward promoting responsible lending and mitigating related-party risks across regulated entities.

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