**Executive Summary**
This document contains Amendment Directions issued by the Reserve Bank of India (RBI) regarding credit risk management for Urban Co-operative Banks. It modifies existing directions concerning the maintenance of Cash Credit Accounts, Current Accounts, and Overdraft Accounts. The amendments take effect from April 1, 2026, although early implementation is permitted.
**Key Points / Main Content**
* **Deletion of Existing Paragraphs:** Paragraphs 19, 20, and 21 in Chapter V, Section B, of the Directions are deleted.
* **New Chapter VIIIA:** A new chapter is added regarding the maintenance of Cash Credit, Current, and Overdraft Accounts.
* **Transaction Accounts:** All three account types (Current, CC, OD) may be used as transaction accounts.
* **Cash Credit Accounts:** CC accounts are primarily for working capital linked to the borrower's current assets.
* **Current Accounts and OD Accounts:**
* No restrictions apply if the banking system's aggregate exposure to the customer is less than ₹10 crore.
* If exposure is ₹10 crore or more, a bank can maintain accounts if it has:
* 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 10% criteria, the two banks with the largest exposures can maintain the accounts.
* If only one bank has any exposure, one additional bank chosen by the customer can maintain accounts.
* Banks not meeting the exposure criteria can only maintain Collection Accounts, requiring a No Objection Certificate (NOC) from the exposure bank.
* **Collection Accounts:** Funds received in a collection account must be remitted within two working days to a designated CC, current, or OD account.
* **Exemptions:** Restrictions do not apply to FEMA accounts, accounts stipulated by statute or regulator instruction, or accounts of entities regulated by financial sector regulators used for regulated activities.
* **Compliance Monitoring:**
* Banks must regularly monitor accounts, at least every half-year.
* If a bank becomes ineligible to maintain an account, it must notify the customer within one month, and the account must be converted or closed within three months.
* **Other Provisions:**
* Accounts must be flagged in the bank's Core Banking Solution (CBS).
* Banks must monitor all of a borrower’s accounts and transactions.
* Accounts must be used solely for authorized business activities.
* Accounts must not be used for third-party transactions unless explicitly licensed by a financial sector regulator.
* Banks must implement robust monitoring systems to detect prohibited usage (high transaction volumes, pass-through activity, etc.).
* Term loan disbursements should be directly to the intended beneficiary when identifiable.
* **Effective Date:** The amendments come into force from April 1, 2026; however, banks may implement them earlier.
**Impact Analysis**
**Stakeholder: Urban Co-operative Banks**
* **Impact:** Banks must adjust their processes and systems to comply with the new directions regarding the maintenance of current, CC, and OD accounts. They need to monitor customer exposure, flag accounts in their CBS, and ensure compliance with transaction restrictions.
* **Action Required:** Banks must review the Amendment Directions, update internal policies, train staff, and modify their CBS to implement the required changes by April 1, 2026, or earlier if they choose.
**Stakeholder: Borrowers / Customers of Urban Co-operative Banks**
* **Impact:** Borrowers may need to adjust their banking relationships based on the exposure criteria and the banks’ ability to maintain their current, CC, and OD accounts. They may need to provide NOCs or convert accounts.
* **Action Required:** Borrowers should review their banking relationships, assess their aggregate exposure across the banking system, and be prepared to provide information to banks or make account adjustments as necessary.
**Stakeholder: Reserve Bank of India (RBI)**
* **Impact:** The RBI will need to monitor the implementation of these directions by Urban Co-operative Banks and enforce compliance to strengthen credit discipline.
* **Action Required:** The RBI will likely conduct supervisory reviews and audits to ensure adherence to the Amendment Directions.
Key Entities Referenced
Reserve Bank of India: The central bank of India, responsible for regulating the banking system.
Banking Regulation Act, 1949: An act that empowers the Reserve Bank of India to regulate, supervise, and develop the banking system in India.
Reserve Bank of India (Urban Co-operative Banks – Credit Risk Management) Directions, 2025: The original document that these Amendment Directions are modifying.
Urban Co-operative Banks: The type of banks that are being governed by the Reserve Bank of India (Urban Co-operative Banks – Credit Risk Management) – Amendment Directions, 2025.
Foreign Exchange Management Act, 1999 (FEMA): Law that provides framework for managing foreign exchange in India.
भारतीय ररज़र्व बैंक
RESERVE BANK OF INDIA
RBI/2025-26/146
DOR.CRE.REC.352/07-02-005/2025-26 December 11, 2025
Reserve Bank of India (Urban Co-operative Banks – Credit Risk
Management) – Amendment Directions, 2025
Please refer to Reserve Bank of India (Urban 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 Chapter V, Section B, and paragraphs 19, 20, and 21 shall be deleted.
(2) After Chapter VIII of the Directions, a new Chapter shall be added as under:
Chapter VIIIA - Maintenance of Cash Credit Accounts, Current
Accounts and Overdraft Accounts by Banks
51A. 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
51B. 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 suchReserve Bank of India (Urban Co-operative Banks – Credit Risk Management) – Amendment Directions, 2025
cash credit facilities as per the needs of the customer, without any
restriction under this Chapter.
B. Current Accounts and OD Accounts
51C. A bank may maintain current account or OD account without any
restriction in case of customers 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),
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.
51D. 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
2Reserve Bank of India (Urban Co-operative Banks – Credit Risk Management) – Amendment Directions, 2025
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 51F of these Directions.
51E. 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
51F. 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
51G. The restrictions placed in terms of paragraph 51D(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.
3Reserve Bank of India (Urban Co-operative Banks – Credit Risk Management) – Amendment Directions, 2025
(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.
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
51H. 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.
51I. 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 51C due to increase in exposure of banking system to
the borrower up to or beyond the specified threshold of ₹10 crore;
or
(2) paragraph 51D(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
4Reserve Bank of India (Urban Co-operative Banks – Credit Risk Management) – Amendment Directions, 2025
closed. The conversion or closure process, as the case may be, shall
be completed within three months of observing such ineligibility.
51J. 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
51K. A bank shall ensure that an accountholder utilise their account
solely for transactions related to their authorised business or activities.
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.
51L. 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.
51M. 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.
51N. Term loans sanctioned by the bank shall preferably be remitted
directly to the intended beneficiary’s account(s) or for the specified end-
5Reserve Bank of India (Urban Co-operative Banks – Credit Risk Management) – Amendment Directions, 2025
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