RBI Tightens Rules on Related Party Lending from April 2026

Current position — reviewed 22 August 2026

These directions are no longer forthcoming — they are in force.

• The RBI directions on lending to related parties took effect on 1 April 2026, following the draft directions issued in October 2025.
• Regulated entities should already have board-approved policies, related-party registers and exposure limits aligned to the directions.

The Reserve Bank of India (RBI) has issued its final amendment framework on lending to related parties, which will come into effect from 1 April 2026. The revised directions aim to strengthen governance standards, improve regulatory clarity, and align the related-party lending framework with the Companies Act, 2013 and the Insolvency and Bankruptcy Code (IBC), 2016.

Background and Legal Authority

The amendments have been introduced under the RBI’s statutory powers conferred by:

• Sections 45JA, 45L, and 45M of the Reserve Bank of India Act, 1934
• Sections 30A and 32 of the National Housing Bank Act, 1987
• Section 6 of the Factoring Regulation Act, 2011

These changes form part of the Reserve Bank of India (Non-Banking Financial Companies – Credit Risk Management) Directions, 2025, and apply to regulated entities (REs) including banks, NBFCs, cooperative banks, and national financial institutions.

Key Changes Introduced

One of the most significant updates under the revised framework is the expanded and harmonised definition of:

• Related parties
• Related persons
• Control
• Promoters
• Key managerial personnel

These definitions are now aligned with those under the Companies Act and the IBC, reducing interpretational ambiguity and ensuring uniform compliance across financial and corporate laws.

Exclusions and Exemptions

RBI has clarified that equity investments in related parties have been excluded from the scope of the related-party lending framework. However, investments in debt instruments of related parties will continue to be covered.

Additionally, the following entities have been exempted:

• NBFCs that do not accept public funds and do not have a customer interface
• Core Investment Companies (CICs) that predominantly lend within their group

These exemptions recognise the limited systemic risk posed by such entities.

Terminology Updates

The amended framework also updates key terminologies to reflect modern governance practices:

• The term “senior officer” has been replaced with “specified employee”
• “Substantial interest” has been substituted with “significant influence and control”

These changes bring regulatory language in line with contemporary corporate governance standards.

No Change in Existing Prohibitions

RBI has confirmed that there are no changes to the existing prohibitions on lending by all-India financial institutions to their directors and related entities. These safeguards continue to remain in force to prevent conflicts of interest.

Objective of the Amendments

The revised framework seeks to:

• Enhance transparency in related-party transactions
• Improve consistency across regulatory regimes
• Strengthen risk management and governance standards
• Reduce regulatory arbitrage and compliance uncertainty

Effective Date

All amended provisions will be effective from April 1, 2026, giving regulated entities sufficient time to review, realign, and update their internal policies and compliance frameworks.