**Executive Summary**
The Reserve Bank of India issued amendment directions effective December 05, 2025, concerning Small Finance Banks undertaking financial services. These directions amend the existing Master Direction, defining "Agency Business" and "Referral Services," and setting new guidelines for investments. Banks not conforming to the new investment directions must submit an action plan by March 31, 2026, for compliance by March 31, 2028.
**Key Points / Main Content**
* **Definitions and Scope:**
* **Agency Business:** Defined as an arrangement where a bank acts as an agent for a third-party product or service provider (TPPSP) without risk participation, facilitating the sale of financial products or services to its own customers.
* **Referral Services:** Defined as an arrangement where a bank refers its customers to a TPPSP by making available information about the products or services offered.
* **Operational Changes:**
* Banks require prior Reserve Bank approval to undertake any new form of business, apart from those permitted in these directions.
* Banks must have a policy covering various aspects of each business, including risk identification, mitigation, and capital allocation.
* A bank cannot set up subsidiaries to undertake any non-banking financial services activities.
* Non-Operative Financial Holding Companies (NOFHC) shall intimate the Reserve Bank within 15 days from the date of resolution of the Board for undertaking such businesses listed under para 13B.
* **Investment Limits:**
* Equity investment by a bank in any entity individually cannot exceed 10% of the bank's paid-up share capital and reserves.
* The aggregate equity investments in all entities, including overseas investments, cannot exceed 20% of the bank's paid-up share capital and reserves.
* Banks may make an aggregate investment of less than 20 percent in the equity share capital of an entity without prior approval, contingent on CRAR and profitability conditions.
* Banks may seek prior approval from the Reserve Bank to make an aggregate investment of 20 percent or more in the equity share capital of an entity.
* A bank shall not contribute more than 10 percent to the corpus of a Category I or Category II AIF Scheme.
* No bank shall make any investment in the corpus of Category III AIF scheme.
* **Compliance and Reporting:**
* Breaches in the limits prescribed under the Master Direction must be reported to the Department of Regulation within 15 days, along with a corrective action plan.
* Banks not conforming to new investment directions must submit an action plan by March 31, 2026, to comply by March 31, 2028.
* **Professional Clearing Member:**
* A bank may become Professional Clearing Member for equity derivative segment of the SEBI recognized stock exchanges.
**Impact Analysis**
* **Small Finance Banks:**
* **Impact:** Changes to operational guidelines and investment limits for undertaking financial services, impacting their business strategies and portfolio management.
* **Action Required:** Review existing policies, investment portfolios, and operational practices to ensure compliance with the amended directions; Submit action plans if not in conformity with new directions.
* **Non-Operative Financial Holding Companies (NOFHC):**
* **Impact:** Impacts their ability to make investment decisions.
* **Action Required:** Intimate the Reserve Bank within 15 days from the date of resolution of the Board for undertaking such businesses listed under para 13B.
* **Reserve Bank of India:**
* **Impact:** Oversight and enforcement of the amended directions; processing of applications for new business activities and investments.
* **Action Required:** Review and process applications for business and investment activities; monitor compliance through submitted reports and action plans.
Key Entities Referenced
Reserve Bank of India (Small Finance Banks – Undertaking of Financial Services) Directions, 2025: A set of directions issued by the Reserve Bank of India related to small finance banks and their undertaking of financial services, which is amended by this notification.
Banking Regulation Act, 1949: An act regulating banking companies in India, referenced for the powers conferred to the Reserve Bank of India.
Reserve Bank of India: The central bank of India, the issuing authority of the directions.
Reserve Bank of India (Small Finance Banks – Classification, Valuation and Operation of Investment Portfolio) Directions, 2025: Directions of Reserve Bank of India regarding Classification, Valuation and Operation of Investment Portfolio for Small Finance Banks.
भारतीय ररज़र्व बैंक
RESERVE BANK OF INDIA
RBI/DOR/2025-26/136
DOR.RAUG.AUT.REC.No.346/24.01.041/2025-26 December 05, 2025
Reserve Bank of India (Small Finance Banks – Undertaking of Financial Services)
(Amendment) Directions, 2025
Reserve Bank had earlier issued directions on Financial Services provided by Banks in
2016, since replaced by entity-wise Master Directions issued on November 28, 2025 -
Reserve Bank of India (Small Finance Banks – Undertaking of Financial Services)
Directions, 2025. A review of some provisions contained in the earlier instructions was
carried out and a draft direction was placed on the website on October 04, 2024.
2. Taking into account the feedback received and consultation held with the stakeholders
and in exercise of the powers conferred by Section 35A of the Banking Regulation Act,
1949 and all other laws enabling the Reserve Bank in this regard, the Reserve Bank
being satisfied that it is necessary and expedient in the public interest to do so, hereby
issues the Amendment Directions hereinafter specified.
3. These Directions shall be called the Reserve Bank of India (Small Finance Banks –
Undertaking of Financial Services) (Amendment) Directions, 2025.
4. The provisions shall come into effect from December 05, 2025.
5. These Amendment Directions modify the Reserve Bank of India (Small Finance Banks
- Undertaking of Financial Services) Directions, 2025 (hereinafter referred to as ‘Master
Direction’) as under:
(i) In paragraph 4 of the Master Direction, the following sub-paras shall be
inserted/substituted as follows:
a) in sub-para (1), the following shall be substituted, namely: -
“Agency Business: means an arrangement under which a bank acts as an agent of
a third-party product or service provider (TPPSP), without risk participation, to
facilitate the sale of the latter’s financial products or services (e.g., insurance, mutual
fund, pension fund, etc.) to its own customers. Under agency business arrangement,the bank shall enter into an agreement with a TPPSP for sale of only regulated
financial products or services. The activities covered under agency business
arrangements may inter-alia include marketing, sales, promotion, initial point of
contact for redressal of grievance and other after-sale services related to the product
or service.”
b) the existing sub-para (1) in the Master Direction, which defines Assignee, has been
renumbered as (1A).
c) for sub-para (14), the following shall be substituted, namely: -
“Referral Services: means an arrangement under which a bank may refer its
customers to a TPPSP by making available information about the financial products
or services offered by the TPPSP.
Note: Under referral arrangement, the bank shall neither be involved in any of the
processes relating to the third-party products or services (TPPS) nor the name or
brand of the bank shall feature in any of the product/service documents. No processes
relating to TPPS shall either be integrated with the bank’s platform/carried out within
the premises of the bank (unless specifically permitted) or be accessible in the form
of a micro-site or micro-application, except for an access link to redirect the customer
to the TPPSP.”
(ii) For paragraphs 11 to 13 of the Master Direction, the following shall be substituted
and new paragraphs 13A and 13B shall be added, namely:-
“11. Unless specified otherwise in these Directions, a bank may undertake businesses
as permitted under Section 5(b) and Section 6(1) of the Banking Regulation Act, 1949
departmentally.
12. An activity undertaken departmentally shall be subject to the following conditions:
(1) A bank shall require prior approval of the Reserve Bank to undertake any new
form of business, other than those permitted in these directions.
(2) There shall be a policy for each form of business undertaken by the bank,
which comprehensively covers various aspects of the said business including
identification of various risks associated with it, an appropriate risk mitigation
framework, and adherence to capital allocation norms as applicable.
213. A bank cannot set up subsidiaries to undertake any non-banking financial services
activities.
13A. The NOFHC, as applicable, shall not require prior approval of the Reserve Bank
for the entities held by it to undertake forms of businesses listed under para 13B
below unless advised otherwise. The NOFHC shall intimate the Reserve Bank within
15 days from the date of resolution of the Board for undertaking such businesses.
Further, an NOFHC shall require the prior approval of the Reserve Bank for the
entities held by it to undertake any other form of business subject to other instructions
as applicable.
13B. Mutual fund business, insurance business, pension fund management, investment
advisory and management services, portfolio management services and broking
services shall not be carried out departmentally by the bank, but only through a group
entity held under NOFHC, as applicable.”
(iii) For paragraphs 16-22 of the Master Direction, the following shall be substituted,
namely:-
(B.1) Limits in terms of bank’s paid-up share capital and reserves
16. Equity investment by a bank in any entity individually, shall not exceed 10 per cent
of the bank’s paid-up share capital and reserves as per the last audited balance sheet
or audited/unaudited balance sheet of the latest quarter, whichever is lower.
17. The aggregate equity investments made in all entities, including overseas
investments, shall not exceed 20 per cent of the bank’s paid-up share capital and
reserves as per the last audited balance sheet or audited/unaudited balance sheet of
the latest quarter, whichever is lower. For calculating the aggregate equity investment
limit, the following investments shall be excluded:
(1) investments in the equity of entities held under ‘Held for Trading’ category as
stipulated in the Reserve Bank of India (Small Finance Banks – Classification,
Valuation and Operation of Investment Portfolio) Directions, 2025 as updated
from time to time, subject to the limit stipulated under Section 19(2) of the Banking
Regulation Act, 1949.
(2) Investments of up to 30 per cent in the equity of non-financial entities acquired
through restructuring of debt or to protect the bank’s interest on loans/investments
made to an entity.
3(B.2) Limits in terms of investee’s capital
18. A bank may make an aggregate investment of less than 20 per cent in the equity
share capital of an entity without prior approval, subject to the following conditions:
(1) The bank’s CRAR shall not be less than the minimum prescribed capital
(including Capital Conservation Buffer) post the investment; and
(2) The bank should have reported net profit in each of the preceding two financial
years.
19. Notwithstanding the conditions listed above, investments held under ‘Held for
Trading’ category shall not require prior approval, subject to the limit stipulated under
Section 19(2) of the Banking Regulation Act, 1949.
20. A bank, with prior approval of the Reserve Bank, may make an aggregate investment
of 20 percent or more in the equity share capital of an entity.
21. Save as otherwise provided in these directions, a bank shall be allowed to invest 20
per cent or more in the equity share capital of a non-financial services entity but not
exceeding 30 per cent only in the following circumstances:
(i) the investee entity is engaged in non-financial business permissible for
banks under Section 6(1) of the Banking Regulation Act, 1949, subject to prior
approval of the Reserve Bank; or
(ii) acquisition is through restructuring of debt or to protect the banks’ interest
on loans/investments made to an entity.
(iii) Banks shall not require prior approval for such acquisitions; however, they
shall submit a time bound action plan for disposal of such shares. The action
plan shall be submitted within 30 days of such acquisition.
22. A bank shall not sponsor (as defined in the Securitisation and Reconstruction of
Financial Assets and Enforcement of Security Interest Act, 2002) more than one
Asset Reconstruction Company (ARC). The aggregate shareholding of the bank in
any ARC shall be less than 20 per cent of the equity share capital of the ARC.
(iv) In paragraph 24 of the Master Direction, the following shall be substituted,
namely:-
24. A bank shall not contribute more than 10 percent to the corpus of a Category I or
Category II AIF Scheme.
4(v) After paragraph 31 of the Master Direction, the following shall be inserted,
namely:-
(B.4) Other general conditions for Investment in Alternative Investment Fund / Real
Estate Investment Trust / Infrastructure Investment Trust
31A. No bank shall make any investment in the corpus of Category III AIF scheme.
31B. Additionally, banks shall ensure that their exposure in an investee company through
their investments in AIF schemes does not result in circumvention of any
regulations applicable to banks.
31C. No bank shall make an investment of more than 10 per cent in the unit capital of a
Real Estate Investment Trust/Infrastructure Investment Trust within the overall
ceiling of 20 per cent of the bank’s net worth permitted for all direct investments in
shares, convertible bonds/ debentures, units of equity-oriented mutual funds and
exposures to AIFs.
(B.5) Additional conditions for investments
31D. As part of bank’s ICAAP framework, the following shall be accounted for the
purpose of determining additional capital requirement which will be subject to
Supervisory Review and Evaluation Process:
(1) risks arising on account of equity investments in unit/paid-up capital, as
applicable, of an AIF Scheme done directly.
(2) capital and risk management policy with respect to the capital requirement and
the risks faced by all business lines.
31E. These Directions shall be read in conjunction with Exposure Norms and Large
Exposure Framework as applicable to banks (Reserve Bank of India (Small Finance
Banks – Concentration Risk Management) Directions, 2025).
31F. Breach, if any, in the limits prescribed under this Master Direction shall be reported
to the Department of Regulation of the Reserve Bank on PRAVAAH portal through the
applicable form within 15 days, from the date of occurrence of such breach along with
reason for such a breach and a plan to correct the same.
31G. A bank which is not in conformity with the directions given in paragraphs 16 to 22
and 31A to 31C above, shall submit an action plan by March 31, 2026, to comply with
5the provisions contained herein within a specified timeline but not later than March 31,
2028.
vi) After paragraph 45 of the Master Direction, the following para shall be inserted,
namely: -
“45A. A bank may become Professional Clearing Member for equity derivative segment
of the SEBI recognized stock exchanges. Prudential criteria and conditions stipulated for
commodity derivative segment in para 45 above shall apply mutatis mutandis to the
equity derivative segment.”
(Manoranjan Padhy)
Chief General Manager
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