Principal Laws and Regulations Governing the Banking Sector

The Banking Regulation Act, 1949 (the “BRA”) is the primary legislation that regulates banking in India. It lays down the licensing requirements, businesses that a bank may engage in, capital requirements and requirements relating to the constitution of board of directors of banks, among others.

Rules, regulations, directions and guidelines on issues relating to banking and the financial sector are issued by the Reserve Bank of India (the “RBI”) under the Reserve Bank of India Act, 1934 (the “RBI Act”) and the BRA. These guidelines/directions lay down:

• prudential norms on income recognition, asset classification and provisioning;
• know your customer directions;
• rules regarding acquisition/holding of shares in banking companies;
• fit and proper criteria for directors on the board of banking companies;
• guidelines for securitisation of assets; and
• transfer of loan exposures, among others.

The Foreign Exchange Management Act, 1999 governs cross-border transactions and related issues, and provides, among other things, the framework for the licensing of banking and other institutions as authorised dealers in foreign exchange.

Other legislation relevant to the banking sector includes:

• the Insolvency and Bankruptcy Code, 2016 (the “IBC”) which lays down the regime for reorganisation and insolvency resolution of companies, partnerships and individuals;
• the Recovery of Debts and Bankruptcy Act, 1993 and Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, which lays down the framework for debt recovery and security enforcement by banks and financial institutions;
• the Payment and Settlement Systems Act, 2007, which regulates the payment systems in India; and
• specific legislation for public sector banks (government owned banks are also subject to specific legislation under which they were formed, eg, the State Bank of India is a public sector bank formed under the State Bank of India Act, 1955).

Regulators Responsible for Supervising Banks

The RBI is the central bank of India and the primary regulatory authority for supervising banks. The RBI has wide-ranging powers which include prescribing prudential norms, laying down requirements for setting up and licensing banks (including branches of foreign banks in India) and corporate governance-related norms, among others.

India has several other financial sector regulators, including:

• the Securities Exchange Board of India (the “SEBI”), which is the regulatory authority for the securities market in India;
• the Insurance Regulatory and Development Authority of India (the “IRDAI”), which is the regulatory authority for the insurance sector; and
• the Insolvency and Bankruptcy Board of India, which regulates the insolvency and bankruptcy regime under the IBC.

The RBI in its statement on Development and Regulatory Policies in October 2023 proposed an omnibus framework for recognising self-regulatory organisations for strengthening compliance culture for various Regulated Entities (REs) of the RBI. The omnibus self-regulatory organisations framework was issued by the RBI in March 2024 and prescribes the broad objectives, functions, eligibility criteria, governance standards, etc.

Broadly, the types of licences can be split into two categories:

• universal licence; and
• special licence for small finance banks and payment banks.

No company is allowed to carry on banking business in India unless it has obtained a licence from the RBI in line with the BRA and the RBI Guidelines for “on-tap” Licensing of Universal Banks in the Private Sector, 2016 (the “On-Tap Guidelines”). The On-Tap Guidelines prescribe eligibility requirements for the promoters of the applicants, shareholding requirements including minimum capitalisation requirements, etc.

Dealing in foreign exchange requires a separate licence as an authorised dealer which is issued by the RBI under the Foreign Exchange Management Act, 1999.

Activities and Services Covered

A licensed banking company can also engage in certain other forms of business such as guarantee and indemnity business, factoring, equipment leasing and hire purchase, underwriting, insurance business with risk participation through a subsidiary/joint venture and securitisation, among others, in line with the terms of the BRA and the RBI’s Master Direction on Reserve Bank of India (Financial Services provided by Banks) Directions, 2016.

Licence Application Process

The licensing window is open on-tap, and the applications can be submitted in the prescribed form to the RBI at any time.

The RBI then assesses whether the applicant meets the eligibility criteria laid down in the On-Tap Guidelines.

Following this, the application is referred to a Standing External Advisory Committee (the “SEAC”) set up by the RBI. The SEAC comprises of eminent persons with experience in banking, financial sector and other relevant areas. The tenure of the SEAC is three years. The SEAC has the right to call for more information as well as have discussions with any applicant(s) and seek clarification on any issue as may be required by it.

The SEAC submits its recommendations to the RBI for consideration. The Internal Screening Committee (the “ISC”), consisting of the governor and the deputy governors, examines all the applications and then submits its recommendations to the Committee of the Central Board of the RBI for the final decision to issue in-principle approval.

Some of the key requirements under the On-Tap Guidelines include the following.

• Eligible promoters (ie, the person who together with their relatives (as defined in the Companies Act, 2013), by virtue of their ownership of voting equity shares, are in effective control of the bank and includes, wherever applicable, all entities which form part of the promoter group) include resident individuals and professionals having ten years of experience in banking and finance at a senior level.
• Promoter/promoting entity/promoter group should be “fit and proper” in order to be eligible to promote banks.
• The board of the directors of the bank should have a majority of independent directors.
• The RBI assesses the “fit and proper” status of the applicants on the basis of the following criteria.
• Where promoters are individuals:
1. each of the promoters should have a minimum ten years of experience in banking and finance at a senior level;
2. the promoters should have a past record of sound credentials and integrity; and
3. the promoters should be financially sound and should have a successful track record of at least ten years.
• Where promoters are entities/NBFCs:
1. the promoting entity/promoter group should have a minimum ten years of experience in running their businesses;
2. the promoting entity and the promoter group should have a past record of sound credentials and integrity;
3. the promoting entity and the promoter group should be financially sound and should have a successful track record of at least ten years; and
4. preference will be given to promoting entities having a diversified shareholding.

The amendment to the “Guidelines for ’on-tap’ Licensing of Small Finance Banks (SFBs) in Private Sector”, dated 5 December 2019, provides clarity on the eligibility and conditions for small finance banks (SFBs) to transition into universal banks. The key changes are as follows.

Eligibility Criteria

SFBs must have a scheduled status and a satisfactory track record for at least five years.

The bank’s shares must be listed on a recognised stock exchange.

Minimum net worth of ₹1,000 crore at the end of the previous quarter (audited).

SFBs must meet the capital to risk assets ratio (CRAR) requirements for SFBs.

Must show net profit in the last two financial years.

The gross non-performing assets (GNPA) and net non-performing assets (NNPA) should be less than 3% and less than 1%, respectively, for the last two financial years.

Shareholding Conditions

There is no mandatory requirement for an identified promoter for the eligible SFB.

Existing promoters, if any, will continue post-transition.

No new promoters or changes in the promoters are allowed during the transition.

No new lock-in requirement for the promoters of the universal bank after the transition.

No change to the dilution plan approved by the RBI for existing promoters.

Preference will be given to SFBs with a diversified loan portfolio.

Transition Process

The SFB must provide a detailed rationale for transitioning.

The application for transition will be assessed based on the Guidelines for “on-tap” Licensing of Universal Banks and the RBI’s Acquisition and Holding of Shares Directions, 2023.

Post-transition, the bank will be subject to all norms, including the non-operative financial holding company (NOFHC) structure (if applicable).

The RBI issued Guidelines on Voluntary Transition of Small Finance Banks to Universal Banks on 25 April 2024 providing detailed guidelines for the transition.

Application Submission

The application must be submitted in Form III as per the Banking Regulation (Companies) Rules, 1949, along with required documents to the RBI’s Department of Regulation.

Conditions for Authorisation

While considering a licence application, the RBI considers the following factors as per the BRA, among others:

• that the company is or will be in a position to pay its present or future depositors in full as their claims accrue;
• that the affairs of the company are not being, or are not likely to be, conducted in a manner detrimental to the interests of its present or future depositors;
• that the general character of the proposed management of the company will not be prejudicial to the public interest or the interest of its depositors;
• that the company has adequate capital structure and earning prospects (currently, the initial paid-up voting equity share capital/net worth required to set up a new universal bank is INR10 billion);
• that the public interest will be served by the grant of a licence to the company to carry on banking business in India;
• the grant of the licence would not be prejudicial to the operation and consolidation of the banking system consistent with monetary stability and economic growth; and
• any other condition, which in the opinion of the RBI, is necessary to ensure that the carrying on of banking business in India by the company will not be prejudicial to the public interest or the interests of the depositors.

The On-Tap Guidelines also specify that the bank should get its shares listed on the stock exchanges within six years of the commencement of business by the bank.

The application form is provided in the Banking Regulation (Companies) Rules, 1949.

Foreign Applicants

In addition to the requirements specified above, in the case of foreign entities the RBI must also be satisfied that:

• the government or law of the country in which the foreign bank is incorporated does not discriminate against banking companies registered in India; and
• the banking company complies with the provisions of the BRA that apply to banking companies incorporated outside India.

The RBI has also issued additional guidelines and requirements for foreign banks seeking a licence to operate through a branch or a wholly owned subsidiary.

Timing and Basis of Decision

No specific timeline is prescribed for deciding on an application but the process can typically be expected to take about 18 months or longer.

Cost and Duration

There are no specific ongoing costs associated with a bank licence. Bank licences issued by the RBI are not usually subject to an expiry date.

Requirements on shareholdings and change of control in banks in India are governed by the BRA and the RBI (Acquisition and Holding of Shares or Voting Rights in Banking Companies) Directions, 2023.

Key requirements/restrictions relating to acquisition or increasing control over a bank are as follows.

• The BRA and the RBI (Acquisition and Holding of Shares or Voting Rights in Banking Companies) Directions, 2023 provide that acquisition of 5% or more of the paid-up capital of a bank or total voting rights of a bank requires the prior approval of the RBI (this is not applicable to foreign banks operating through a branch in India and banks established under specific statutes).
• Any person acquiring 5% or more is required to make an application to the RBI in a prescribed form. The RBI undertakes due diligence to assess the “fit and proper” status of the applicant.
• Persons from Financial Action Task Force (FATF) non-compliant jurisdictions are not permitted to acquire a major shareholding (ie, 5%) in the banking company.
• In Indian banks, foreign shareholders can hold up to 74% of a private bank’s paid-up equity share capital. However, Indian residents will at all times hold at least 26% of the paid-up share capital of private sector banks (except in regard to a wholly owned subsidiary of a foreign bank). Additionally, a non-resident entity of a country, which shares a land border with India or where the beneficial owner of an investment into India is situated in or is a citizen of any such country, can only invest in India with the prior approval of the government.

The following shareholding limits apply.

• For non-promoters:
1. 10% of the paid-up share capital or voting rights of the banking company in case of natural persons, non-financial institutions, financial institutions directly or indirectly connected with large industrial houses and financial institutions that are owned to the extent of 50% or more or controlled by individuals (including the relatives and persons acting in concert); or
2. 15% of the paid-up share capital or voting rights of the banking company in case of financial institutions (excluding those mentioned in the paragraph above), supranational institutions, public sector undertaking and central/state government.
• For promoters:
1. 26% of the paid-up share capital or voting rights of the banking company after the completion of 15 years from commencement of business of the banking company. Before the completion of five years, the promoters of banking companies may be allowed to hold a higher percentage of shareholding as part of the licensing conditions or as part of the shareholding dilution plan submitted by the bank and approved by the RBI with such conditions as deemed fit.
• A higher shareholding may be permitted by the RBI on a case-by-case basis under certain circumstances such as relinquishment by existing promoters and reconstruction/restructuring of banks, among others.
• No shareholder in a banking company can exercise voting rights on poll in excess of 26% of the total voting rights of all of the shareholders of the banking company.
• Acquisition of voting rights or shares in excess of 25% shares or voting rights in a listed entity may also trigger an open offer (for at least a further 26% of the shares in the bank) under the Indian takeover regulations.

Foreign Banks (Operating Through a Branch in India)

There are no specific requirements relating to a change in shareholding of a foreign bank operating through a branch in India. However, this may be subject to a condition in its licence.

The corporate governance requirements for banks are primarily provided under: 

• the Companies Act, 2013, which lays down several corporate governance norms (ie, disclosure requirements, composition of board of directors, setting up of audit committee, remuneration committee); 
• the SEBI regulations (Listing Obligations and Disclosure Requirements) Regulations, 2015 (the “LODR Regulations”). If a banking company is listed, the LODR Regulations are applicable. These lay down requirements relating to disclosure, director appointments and shareholder protection. Under the LODR Regulations, a listed entity is required to make timely and accurate disclosure on all material matters including the financial situation, performance, ownership and governance of the listed entity;
• the RBI guidelines relating to “fit and proper” criteria for directors, compliance function in banks and prudential norms, among others; and 
• the standards and codes prescribed by the Indian Banks Association. 

These laws, regulations and guidelines mainly cover issues such as the following. 

• Board of director-related requirements such as composition, “fit and proper” criteria, remuneration, etc. For example, the RBI notification on “Corporate Governance in Banks – Appointment of Directors and Constitution of Committees of the Board”, dated 26 April 2021 (the “Corporate Governance Notification”) (applicable to private sector banks and wholly owned subsidiaries of foreign banks) mandates that the chair of the board should be an independent director. The quorum of the board meetings has to be one-third of the total strength of the board or three directors, whichever is higher.
• Requirements relating to the different committees of the board of directors that are required to be constituted. For example, under the Corporate Governance Notification, the following committees of the board of directors are required to be constituted:
1. audit committee;
2. risk management committee; and 
3. nomination and remuneration committee.
• Additional committees such as a corporate social responsibility committee may need to be formed in line with the provisions of the Companies Act, 2013.
• Requirements relating to diversified ownership of private banks, as discussed in 2 Authorisation, and ESG-related frameworks.

Key requirements applicable to registration and oversight of senior management of banks under the BRA include the following.

• No less than 51% of the total number of members of the board of directors of a bank should consist of persons who have special knowledge or practical experience in respect of one or more of the following matters:
1. accountancy, agriculture and rural economy;
2. banking;
3. co-operation;
4. economics;
5. finance;
6. law;
7. small-scale industry; or
8. any other matter the special knowledge of, and practical experience in, which would, in the opinion of the RBI, be useful to the banking company. Additionally, at least two must have special knowledge in agriculture and rural economy, co-operation or small-scale industry.
• No director of a banking company, other than its chair or full-time director, can hold office continuously for a period exceeding eight years. However, under Section 10A of the Banking Laws (Amendment) Bill, 2024 the wording of Section 10A (sub-section (2A), clause (i)) of the BRA has been changed. The term for the holding of office by directors has been extended to “ten years in the case of a co-operative bank”, in addition to the existing eight years for other types of banks.
• Every bank should have one of its directors, who may be appointed on a full-time or a part-time basis, as chair of its board of directors, and where they are appointed on a full-time basis, as chair of their board of directors, they are entrusted with the management of all of the affairs of the banking company, subject to the superintendence, control and direction of the board.
• Not less than 51% of the total number of members of the board of directors of a bank may consist of persons who will not:
1. have a substantial interest in, or be connected with (as an employee, manager or managing agent) any company or firm carrying on trade, commerce or industry which is not a small-scale industrial concern; or
2. be proprietors of any trading, commercial or industrial concern.
• A bank cannot have a director that is a director of another bank, unless the director is appointed by the RBI. However, in the Banking Laws (Amendment) Bill, 2024, the wording of Section 16 (sub-section (3)) of the BRA has been changed. A provision allowing a director of a central co-operative bank to be elected to the board of a state co-operative bank, alongside the RBI has been added.
• A bank cannot have more than three directors who are directors of companies which are together entitled to exercise voting rights exceeding 20% of the total voting rights of the bank’s shareholders.

The BRA prohibits employment of any person whose remuneration or part of whose remuneration takes the form of commission or a share in the profits of the company, or whose remuneration is, in the opinion of the RBI, excessive. Under the BRA, the remuneration of a chair, a managing or full-time director, manager or CEO and any amendment thereto requires the prior approval of the RBI.

The RBI “Guidelines on Compensation of Whole Time Directors/Chief Executive Officers/Material Risk Takers and Control Function Staff, 2019” (the “Compensation Guidelines”) also govern the remuneration of directors and bank executives. These apply to private and foreign banks operating in India.

The Compensation Guidelines have adopted the Financial Stability Board Principles for Sound Compensation. Key requirements under these Guidelines are set out below.

• Banks should formulate and adopt a comprehensive compensation policy covering all their employees. This policy must cover aspects such as fixed pay, benefits, bonuses, guaranteed pay, severance packages, stocks, pension plans and gratuities.
• A board of directors should set up a nomination and remuneration committee to oversee the framing, review and implementation of a bank’s compensation policy.
• For full-time directors, CEOs and material risk-takers, banks should ensure compensation is adjusted for all types of risk. The Compensation Guidelines set out the compensation structure for full-time directors/CEOs/material risk-takers with the following components: fixed pay and variable pay.
• Members of staff engaged in financial and risk control should be compensated independently of the business areas they oversee and commensurate with their key role in the bank.
• Foreign banks operating in India under branch mode must submit a declaration to the RBI annually from their head office that their compensation structure in India complies with Financial Stability Board principles and standards.
• Banks’ compensation policies are subject to supervisory oversight including review under the Basel framework as per the Compensation Guidelines. Any deficiencies found will increase the risk profile of the bank. The consequences may also include a requirement for additional capital to be raised if the deficiencies are very significant.

In India, the Prevention of Money-Laundering Act, 2002 (the “PMLA”) provides the legal framework for anti-money laundering and countering financing of terrorism-related requirements. Under the PMLA, banks are required to follow customer identification procedures and monitor their transactions. The RBI has issued Know Your Customer Directions, 2016 (the “KYC Directions”), which lay down the AML/CFT requirements for banks.

Some of the key requirements relating to anti-money laundering and counter-terrorist financing requirements under the KYC Directions are as follows.

• Each bank should have a KYC policy approved by its board. The KYC policy needs to include the following:
1. customer acceptance policy;
2. risk management;
3. customer identification procedures; and
4. monitoring of transactions.
• Every bank which is part of a group, needs to implement group-wide programmes against money laundering and terror financing, including group-wide policies for sharing information required for the purposes of client due diligence and money laundering and terror financing risk management. The programmes need to include adequate safeguards on the confidentiality and use of information exchanged, including safeguards to prevent tipping-off.
• The bank policy should provide a bulwark against threats arising from money laundering, terrorist financing, proliferation financing and other related risks. Banks may also consider adopting international best practices taking into account the FATF standards and FATF guidance notes on managing risks better.
• Banks also need to carry out a “money laundering and terrorist financing risk assessment” exercise periodically to identify, assess and take effective measures to mitigate its money laundering and terrorist financing risk for clients, countries or geographic areas, products etc.
• The KYC Directions also lay down detailed requirements regarding customer acceptance policy, risk management, customer due diligence procedure and record management, among others.

The Deposit Insurance and Credit Guarantee Corporation (the “DICGC”), a wholly owned subsidiary of the RBI administers the Deposit Insurance Scheme. Deposits such as savings, fixed, current and recurring deposits at all commercial banks including branches of foreign banks functioning in India, local area banks and regional rural banks are insured by the DICGC. However, the following types of deposits are not insured: 

• deposits of foreign governments;
• deposits of central/state governments;
• inter-bank deposits;
• deposits of the State Land Development Banks with the State co-operative bank;
• any amount due on account of and deposit received outside India; and
• any amount, which has been specifically exempted by the DICGC with the previous approval of the RBI.

Each depositor in a bank is insured up to a maximum of INR0.5 million for both principal and interest amount as of the date of liquidation/cancellation of a bank՚s licence or the date on which the scheme of amalgamation/merger/reconstruction comes into force. The premium for the deposit insurance is borne entirely by the insured bank.

India adopted the Basel III Capital Regulations in 2013, which were fully implemented on 1 October 2021, as noted under the RBI’s Master Circular on Basel III Capital Regulations dated 12 May 2023 which were later amended on 1 April 2024. The capital adequacy framework applies to banks at both a consolidated and a standalone level.

Banks are required to maintain a minimum Pillar One capital to risk weighted assets ratio (CRAR) (a ratio of the bank’s capital in relation to its risk weighted assets) of 9% on an ongoing basis (other than capital conservation buffer and countercyclical capital buffer, etc).

Every bank needs to maintain, by way of a cash reserve, a sum equivalent to a certain percentage of the total of its net demand and time liabilities (NDTL) in India. The NDTL of a bank includes:

• liabilities towards the banking system net of assets with the banking system (as defined in the BRA and the RBI Act); and
• liabilities towards others in the form of demand and time deposits or borrowings or other miscellaneous items of liabilities.

Banks currently need to maintain a cash reserve ratio (CRR) of 4.50% of the bank’s total NDTL as of the last Friday of the second preceding fortnight. Every scheduled bank needs to maintain a minimum CRR of not less than 90% of the required CRR on all days during the reporting fortnight, in such a manner that the average CRR maintained daily will not be less than the CRR prescribed by the RBI.

Every scheduled commercial is required to maintain assets (such as unencumbered government securities, cash and gold) the value of which will not, at the close of business on any day, be less than 18% of their total net demand and time liabilities in India as of the last Friday of the second preceding fortnight in line with the method of valuation specified by the RBI from time to time.

Banks are also required to maintain a liquidity coverage ratio (LCR) of 100%, which requires banks to maintain high quality liquid assets (HQLAs) to meet 30 days net outgoings under stressed conditions.

The minimum leverage ratio for domestically systemically important banks is 4% and 3.5% for other banks.

Regulatory Framework for Resolution of Insolvency of Banks

There is no specialised resolution regime for insolvency of financial firms in India. The BRA lays down the following modes of resolution for failing banks.

• The RBI directed scheme of reconstruction or amalgamation under Section 45 of the BRA. This is the most commonly used mechanism for bank resolution. Under this provision, the RBI may apply to the central government for an order of moratorium in respect of the bank. Following the application, the RBI will prepare a scheme for the reconstruction of the bank, or for the amalgamation of the bank with any other bank. This scheme is then placed before the central government for its sanction. Once sanctioned, it is binding on all the members, depositors and other creditors and employees of each of the banks.
• Voluntary amalgamation under Section 44A of the BRA. This allows banks to voluntary amalgamate with another bank, with the approval of their respective shareholders. If the scheme is approved by the requisite majority of the banks’ shareholders, it is submitted to the RBI for its sanction.
• Court-ordered winding-up under Section 38 of the BRA. The RBI may apply to the High Court to wind up banks in certain circumstances (ie, the continuance of the banking company is prejudicial to the interests of its depositors).

Bank Limited’s scheme of reconstruction in 2020 provides an example of resolution of a bank through a draft RBI scheme of reconstruction under Section 45 of the BRA.

The RBI has also introduced a “Prompt Corrective Action (PCA) Framework for Scheduled Commercial Banks”, which is governed by its notification dated 2 November 2021. The prompt corrective action framework was introduced to enable supervisory intervention at the appropriate time and require the bank to initiate and implement remedial measures in a timely manner, so as to restore its financial health. The prompt corrective action taken may include restriction on dividend distribution/remittance of profits, promoters to bring in capital, restriction on branch expansion, restrictions on capital expenditure, other than for technological upgradation within board approved limits, special supervisory actions, strategy-related, governance-related, capital-related, credit risk-related, market risk-related, HR-related, profitability-related, operations/business-related or any other specific action that the RBI may deem fit considering the specific circumstances of a bank.

Additionally, in July 2024, the RBI introduced a PCA Framework for Urban Co-operative Banks (UCBs), effective from 1 April 2025, focusing on Tier 2, Tier 3 and Tier 4 UCBs. This framework replaces the SAF and includes structured corrective measures for capital, asset quality and profitability.

Importantly, in November 2019, the Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings of Financial Service Providers and Application to Adjudicating Authority) Rules, 2019 (the “FSP Rules”) were notified under the IBC. The FSP Rules expanded the remit of the IBC from corporate debtors to insolvency and liquidation of financial service providers. The FSP Rules are currently applicable to systemically important non-banking finance companies having an asset size of INR5 billion or more.

In April 2023, the RBI released a framework for the acceptance of green deposits applicable to banks to encourage banks to offer green deposits to customers and help increase credit flow to green projects.

Some of the key features of the green deposit framework include the following.

• Banks needs to adopt board-approved policy on green deposits which lay down details of issuance and allocation of green deposits.
• Green deposits can be issued as cumulative/non-cumulative deposits, which may be renewed or withdrawn at the option of the depositor on its maturity. Green deposits only need to be denominated in Indian rupees.
• A financing framework needs to be adopted by banks which covers projects which are eligible for being financed from green deposits, process for evaluation and selection of eligible projects, allocation of green deposit proceeds and its third-party verification, among others.
• Allocation of proceeds from green deposits needs to be towards the sectors listed in the RBI framework, which includes renewable energy, energy sufficiency and clean transportation, among others. Exclusions from eligible projects includes projects involving new or existing extraction, production and distribution of fossil fuels or where the core energy source is fossil fuel-based, nuclear power generation and direct waste incineration, among others.
• Allocation of funds from green deposits needs to be subject to a third-party verification/assurance on an annual basis. The third-party verification report must verify that green deposits proceeds were used towards eligible green activities/projects.
• Banks need to assess the impact of the funds lent towards green finance activities/projects through an impact assessment report on an annual basis in the manner set out in the RBI framework.
• A review report (containing details regarding the amount raised under green deposits during the previous financial year, list of green activities/projects to which proceeds have been allocated, the amounts allocated to the eligible green activities/projects, a copy of the third-party verification/assurance report and the impact assessment report, among others) needs to be placed by the bank before its board of directors within three months of the end of the financial year.

The RBI also issued a draft disclosure framework on climate-related risks in February 2024. The draft guidelines propose REs to disclose information about their climate-related financial risks and opportunities for the users of financial statements. The final guidelines in relation to this disclosure framework are still awaiting issuing.

There is no applicable information in this jurisdiction.

The Banking Laws (Amendment) Bill, 2024 proposes comprehensive amendments to key legislation governing India’s banking sector. The amendments aim to strengthen governance, ensure consistent reporting mechanisms, enhance depositor and investor protection, and modernise banking practices to reflect evolving financial needs.

The RBI issued a statement on development and regulatory policies in April 2024 proposing certain assumptions under the liquidity coverage ratio framework be revisited because of emerging risks in the increased ability of depositors to quickly withdraw or transfer deposits during times of stress, using digital banking channels. A draft circular in this regard was released in July 2024 and is expected to come into effect in April 2025. The norms proposed include imposing additional run-off factor on depositors enabled with mobile banking facilities and valuation of Level 1 HQLA held in the form of government securities.

The RBI also released a draft guideline on Income Recognition, Asset Classification and Provisioning pertaining to Advances – Projects Under Implementation on 3 May 2024. The draft guideline covers the financing of projects in the infrastructure, non-infrastructure and commercial real estate sectors by banks and other entities regulated by the RBI. The RBI has increased the provisioning requirement on standard assets. The RBI has proposed categorising projects into design, construction and implementation phases. The guideline now proposes additional provisioning norms in relation to projects based on their phase.

In its annual report for the financial year 2023-24, the RBI also highlighted multiple regulatory changes had been introduced to strengthen the financial market including the following key changes.

• Introduction of expected credit loss (ECL) framework for provisioning by banks. An external working group comprising of domain experts from academia, industry and select major banks has been established to holistically examine and provide independent comments on the frameworks and draft guidelines introduced.
• Framework for securitisation of stressed assets. In January 2023, the RBI released a discussion paper on the introduction of a framework for securitisation of stressed assets (in addition to the existing route of securitisation via the asset reconstruction companies route).

The Insolvency and Bankruptcy Board of India issued Guidelines for Committee of Creditors on 6 August 2024 with the aim of enhancing the efficiency, transparency and decision-making of the committee of creditors (CoC) under the IBC. Given that Indian banks and financial institutions typically form part of the CoC their regulation by the Insolvency and Bankruptcy Board of India is presently unclear. However, the deputy governor of the RBI has indicated that the Insolvency and Bankruptcy Board of India, which is the designated regulator under the IBC, should have the powers to enforce norms around the conduct of all stakeholders under the IBC process and an enforceable code of conduct may be brought in to ensure best practices are not deviated from.