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Informist, Monday, Jan. 5, 2026

 

NEW DELHI – The Reserve Bank of India Monday issued amendment directions on lending to related parties by regulated entities after receiving feedback on the draft norms it had issued in early October. Under the amendment directions, the central bank has simplified the definition of "related party" by removing the reference to relatives. Additionally, the RBI has removed the monetary threshold of INR 50 million that was originally proposed as a criterion for defining a related party.  

 

The central bank has also excluded nominee directors of other banks, appointed by the government, the RBI, or any other statutory body, from the "related party" definition. The draft norms had earlier defined "related party" as a related person or a relative of the related person, who is a partner, manager, key managerial personnel, director, or a promoter.

 

"However, the suggestion for exclusion of Nominee Director and Independent Directors of own Bank has not been accepted, as such directors may exercise significant influence in the decision-making process of the regulated entities," it said. Further, an entity will not be called a related party if the advice, directions, or instructions given by it are in a professional capacity, as per the amendment guidelines.

 

Under the initial draft norms, the RBI had proposed that a bank should be precluded from having any exposure, including investments in equity or debt capital instruments, to its promoters, shareholders holding 10% or more in paid-up equity capital of the bank, relatives of such promoters or shareholders as also the entities in which they have substantial interest. However, in the amendment directions, the central bank said this direction would not apply to a financial institution, a scheduled commercial bank, a foreign portfolio investor, or a mutual fund holding 10% or more of the equity share capital of the bank as a non-strategic investment and without any control of the bank.

 

The central bank clarified that the norms cover banks' lending to related parties with investments in debt instruments. However, equity investment exposure by lending parties is excluded from the scope of the directions. Further, non-banking finance companies, which do not access public funds and have no customer interface, and core investment companies, which predominantly lend to their group companies, are also exempted from the RBI's guidelines.

In order to maintain ease of compliance, regulated entities would be required to disclose the aggregate amount of contracts and arrangements awarded to their related parties, the RBI said. This was after a request from stakeholders that materiality threshold should also be prescribed in respect of contracts and arrangements with related parties. 

 

Further, the central bank said that, in line with the scale-based approach, differential materiality thresholds have been stipulated in respect of loans permitted with board approval. Loans to relatives of directors, or companies in which they are interested have been permitted for Tier-4 urban cooperative banks as per the materiality threshold.  End

 

Reported by Pratiksha

Edited by Tanima Banerjee

 

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