**Executive Summary**
This document outlines amendment directions issued by the Reserve Bank of India (RBI) concerning the credit risk management of Rural Co-operative Banks. It modifies existing directions related to cash credit, current accounts, and overdraft accounts. The amendments come into force on April 1, 2026, although banks can implement them earlier.
**Key Points / Main Content**
* **Definitions (Amendment to Paragraph 4):**
* **Cash Credit (CC):** Defines CC as a facility allowing advances up to a credit limit, secured by hypothecation or pledge of assets, with outstanding amounts repayable on demand.
* **Current Account:** Defines current account as a demand deposit account allowing unlimited withdrawals.
* **Overdraft (OD):** Defines OD as a facility allowing drawing an agreed sum in excess of credit balance.
* **Maintenance of Accounts (New Chapter VIA):**
* Current, Cash Credit (CC), and Overdraft (OD) accounts may be used as transaction accounts, but the Chapter provides a framework for maintaining them.
* CC accounts can be provided without restriction, based on customer needs.
* Banks can maintain current or OD accounts without restriction if the aggregate exposure of the banking system to the customer is less than ₹10 crore.
* **Customers with Exposure of ₹10 Crore or More:**
* Banks may maintain current or OD accounts if they have:
* A minimum 10% share in the banking system's aggregate exposure, or
* A minimum 10% share in the banking system's aggregate fund-based exposure.
* If no bank meets the above criteria, the two banks with the largest exposures may maintain the accounts.
* Banks not meeting eligibility can maintain only collection accounts.
* **Collection Accounts:**
* Funds in collection accounts must be remitted within two working days to a designated CC, current, or OD account.
* Disbursement of OD limit from an OD account must be through the designated account only.
* **Exemptions:**
* Restrictions do not apply to FEMA-related accounts, accounts stipulated by statute or regulator instruction, or accounts of entities regulated by a financial sector regulator for their regulated activities.
* **Compliance Monitoring:**
* Banks must monitor accounts regularly (at least semi-annually).
* If a bank becomes ineligible to maintain an account, it must notify the customer within one month to convert to a collection account or close the account within three months.
* Accounts opened under these directions must be flagged in the CBS.
* Banks must monitor multiple accounts for a borrower at both account and borrower levels.
* **Other Provisions:**
* Accounts should be used solely for authorized business or activities.
* Accounts cannot be used as pass-through channels for third-party transactions.
* Robust monitoring systems are required to detect prohibited usage.
* Term loan amounts should be remitted directly to the beneficiary's account.
**Impact Analysis**
**Rural Co-operative Banks**
* **Impact:** Banks must update their internal policies and procedures to align with the new directions regarding account maintenance, monitoring, and usage restrictions. They will need to enhance their monitoring systems to detect and prevent prohibited activities.
* **Action Required:** Banks must review existing account relationships, flag accounts, and notify customers who no longer meet eligibility criteria. They must also implement the necessary changes to their core banking systems and train staff on the new requirements.
**Customers of Rural Co-operative Banks**
* **Impact:** Customers with aggregate banking exposure exceeding ₹10 crore may face restrictions on the number of current and OD accounts they can maintain with individual banks. They may also need to designate specific accounts for transactions.
* **Action Required:** Customers should review their banking relationships and exposures to ensure compliance with the new directions. They may need to consolidate accounts or obtain No-Objection Certificates (NOCs) from their primary banks.
**Reserve Bank of India (RBI)**
* **Impact:** The RBI will need to monitor the implementation of these directions by Rural Co-operative Banks and ensure compliance through its supervisory processes.
* **Action Required:** The RBI should provide guidance and clarifications to banks regarding the interpretation and application of the new directions. They will also need to update their supervisory frameworks to incorporate these changes.
Key Entities Referenced
Reserve Bank of India (Rural Co-operative Banks – Credit Risk Management) Directions, 2025: The original Directions that are being amended by these Amendment Directions.
Reserve Bank of India (Rural Co-operative Banks – Credit Risk Management) – Amendment Directions, 2025: Document containing the amendments to the directions concerning credit risk management in rural co-operative banks.
Banking Regulation Act, 1949: Act that is being referred to for the source of power being exercised in these directions.
Reserve Bank of India: The central bank of India, issuing these Directions.
भारतीय ररज़र्व बैंक
RESERVE BANK OF INDIA
RBI/2025-26/147
DOR.CRE.REC.353/07-02-006/2025-26 December 11, 2025
Reserve Bank of India (Rural Co-operative Banks – Credit Risk
Management) – Amendment Directions, 2025
Please refer to Reserve Bank of India (Rural Co-operative Banks – Credit Risk
Management) Directions, 2025 dated November 28, 2025 (hereinafter referred to as
‘the Directions’).
2. On a review, in exercise of the powers conferred by the Sections 21 and 35A read
with Section 56 of the Banking Regulation Act, 1949 and all other provisions / laws
enabling the Reserve Bank of India (hereinafter called the Reserve Bank) in this
regard, the Reserve Bank being satisfied that it is necessary and expedient in the
public interest so to do, hereby issues the Amendment Directions hereinafter specified.
3. The Amendment Directions modifies the Directions as under:
(1) In Paragraph 4 of the Directions:
(i) The following sub-para (1) shall be inserted, namely:
(1) In these Directions, unless the context otherwise requires:
(i) 'Cash credit (CC)’ shall mean a facility, under which a customer is
allowed an advance up to the credit limit against the security by way of
hypothecation / pledge of goods, book debts, standing crops, etc. The
facility is a running account and ’Drawing Power – DP’ is periodically
determined with reference to the value of the eligible current assets.
The outstanding amount is repayable on demand.
(ii) ’Current Account’ shall mean a form of demand deposit account
wherefrom withdrawals are allowed any number of times depending
upon the balance in the account or up to a particular agreed amount
and shall also be deemed to include other deposit accounts which are
neither Savings nor Term deposit account.Reserve Bank of India (Rural Co-operative Banks – Credit Risk Management) – Amendment Directions, 2025
(iii) ‘Overdraft (OD)’ shall mean a facility, under which a customer is
allowed to draw an agreed sum (credit limit) in excess of credit balance
in their account. The overdraft facility may be secured (against fixed /
term deposits and other securities, like small saving instruments,
surrender value of insurance policies, etc.) or clean (i.e. without any
security). The overdraft facility might be granted on their current
account, savings deposits account or temporary overdraft on credit
accounts.
(ii) The existing paragraph 4 shall be renumbered as sub-para (2) of
paragraph 4.
(2) After Chapter VI of the Directions, a new Chapter shall be added as under:
Chapter VIA - Maintenance of Cash Credit Accounts, Current
Accounts and Overdraft Accounts by Banks
25A. Current Accounts, Cash Credit Accounts (CC), and Overdraft
Accounts (OD) may all be used as transaction accounts by the
customers, which raises concerns relating to credit monitoring by the
lenders. With a view to strengthening credit discipline and facilitating
better monitoring of transactions and utilisation of funds, this Chapter
provides a framework for maintaining such accounts banks.
A. Cash Credit Accounts
25B. CC account is operationally different from a current account or
OD account, given its primary nature as a working capital facility linked
to the value of the borrower's current assets. A bank may provide such
cash credit facilities as per the needs of the customer, without any
restriction under this Chapter.
B. Current Accounts and OD Accounts
25C. A bank may maintain current account or OD account without any
restriction in cases where the aggregate exposure of the banking
system to the customer is less than ₹10 crore.
Explanation (1): ‘Banking System’ for the purpose of this Chapter shall
include Commercial Banks (including Small Finance Banks, Local Area
Banks, and Regional Rural Banks, but excluding Payments Banks),
2Reserve Bank of India (Rural Co-operative Banks – Credit Risk Management) – Amendment Directions, 2025
Urban Co-operative Banks and Rural Co-operative Banks (State Co-
operative Banks and Central Co-operative Banks).
Explanation (2): ‘Exposure’ for the purpose of this Chapter means the
sum of all sanctioned fund-based credit facilities and non-fund-based
facilities availed by the borrower from the banking system.
25D. In case of customers to whom the exposure of the banking system
is ₹10 crore or more:
(1) A bank may maintain current accounts or OD accounts as per the
needs of the customer provided that the bank has either:
(i) A minimum 10 per cent share in banking system’s aggregate
exposure to the borrower; or
(ii) A minimum 10 per cent share in banking system’s aggregate
fund-based exposure to the borrower;
Provided that, in case no bank within the banking system meets the
above criteria, or only one bank meets the above criteria, two banks
from the banking system having the largest exposures to the borrower
may maintain current accounts or OD accounts.
Provided further that, in case where only one bank within the banking
system has any exposure to the borrower, one more bank of the
customer’s choice within the banking system may maintain current
accounts, subject to furnishing of a no-objection certificate (NOC) from
the bank that has the exposure to the borrower.
(2) A bank, not meeting the eligibility criteria at paragraph (1) above ,
may maintain only collection accounts.
Explanation: ‘Collection Account’ for the purpose of this Chapter
means a current account or OD account used primarily for receipts
of cash inflows of the accountholder. Restricted payments / cash
outflows from such account shall be subject to the conditions
outlined in paragraph 25F of these Directions.
3Reserve Bank of India (Rural Co-operative Banks – Credit Risk Management) – Amendment Directions, 2025
25E. With a view to ensuring credit discipline, lenders may include
additional covenants as per their policies in their loan agreements in
mutual agreement with borrowers.
C. Collection Accounts
25F. Funds credited into a collection account shall be remitted within
two working days of receipt of such funds to a CC account, current
account, or OD account maintained with any bank in the banking
system and designated by the borrower for this purpose (hereinafter
referred to as ‘designated account’ in this Chapter). Any disbursement
of overdraft limit from an OD account, which is in the nature of a
collection account, shall be through the designated account only.
Provided that statutory dues such as taxes, and dues, if any, to the
bank maintaining the collection account may be debited before
remitting the funds.
D. Exemptions
25G. The restrictions placed in terms of paragraph 25D(1) of these
Directions shall not be applicable to the accounts mentioned below:
(1) Accounts opened as per the provisions of Foreign Exchange
Management Act, 1999 (FEMA) and notifications issued
thereunder, including accounts mandated for ensuring compliance
under the FEMA framework.
(2) Specific accounts or transactions which are stipulated under a
statute or a specific instruction of a financial sector regulator, or the
Central Government or a State Government.
Explanation: ‘Financial sector regulator’ for the purpose of this
Chapter refers to the Reserve Bank of India (RBI), the Securities
and Exchange Board of India (SEBI), the Insurance Regulatory and
Development Authority of India (IRDAI) and the Pension Fund
Regulatory and Development Authority (PFRDA).
(3) Accounts of entities regulated by a financial sector regulator, used
for the purpose of carrying out their regulated activities.
4Reserve Bank of India (Rural Co-operative Banks – Credit Risk Management) – Amendment Directions, 2025
Provided that banks operating the above-mentioned exempted
accounts shall ensure that transactions in such accounts are used only
for the permitted / specified purposes. Surplus funds, if any, in such
accounts shall be remitted to the designated account.
E. Compliance Monitoring
25H. For the purpose of ensuring ongoing compliance with this
Chapter, all banks shall monitor accounts maintained with them on a
regular basis, and in any case at least once every half-year.
25I. In case it is observed that a bank is no longer eligible to maintain
a current account or OD account opened in terms of:
(1) paragraph 25C due to increase in exposure of banking system to
the borrower up to or beyond the specified threshold of ₹10 crore;
or
(2) paragraph 25D(1), due to changes in the bank’s share in banking
system’s aggregate exposure or in aggregate fund-based exposure
to the borrower; or due to non-availability of NOC from the bank
that has exposure to the borrower.
then the bank shall notify the customer(s) concerned promptly, and in
any case within one month from the date of observing such ineligibility,
that the account must either be converted to a collection account or
closed. The conversion or closure process, as the case may be, shall
be completed within three months of observing such ineligibility.
25J. Accounts opened in terms of these Directions shall be
appropriately flagged in the bank’s core banking solution (CBS) to
ensure clear identification and to facilitate effective monitoring. Banks
maintaining multiple accounts for a borrower shall ensure that such
accounts and transactions and cashflows therein are monitored at the
borrower level as also at the account level.
F. Other Provisions
25K. A bank shall ensure that an accountholder utilise their account
solely for transactions related to their authorised business or activities.
5Reserve Bank of India (Rural Co-operative Banks – Credit Risk Management) – Amendment Directions, 2025
These accounts shall not, under any circumstances, be used as pass-
through channels for facilitating third-party transactions.
Provided that entities expressly licensed or authorised by a financial
sector regulator to facilitate third-party transactions may continue to do
so. However, such activities shall strictly be limited to the specific
transactions they are authorised to do and shall not extend beyond that
scope. Any account that has been permitted to carry out such third-
party transactions shall be appropriately flagged in the bank’s CBS to
ensure clear identification and to facilitate effective monitoring.
25L. A bank shall ensure that an accountholder, who is not licensed or
authorised by the Reserve Bank to accept deposits or to provide
payment services, do not engage in such activities through accounts
maintained with them.
25M. Robust monitoring systems shall be implemented to detect the
above prohibited usage, including mechanisms to flag accounts
exhibiting unusually high transaction volumes, frequent pass-through
activities, or inconsistencies between the accountholder’s stated line of
business and transactions carried out through the account.
25N. Term loans sanctioned by the bank shall preferably be remitted
directly to the intended beneficiary’s account(s) or for the specified end-
use, where such beneficiary is identifiable, rather than routing the funds
through the borrower’s account.
4. The above amendments shall come into force from April 1, 2026. Banks may
however decide to implement the amendments in entirety from an earlier date.
Vaibhav Chaturvedi
(Chief General Manager)
6