Banking Regulation 2026 Comparisons

Principal Laws and Regulations Governing the Banking Sector

The Banking Regulation Act, 1949 (BRA) is the primary legislation that regulates banking in India. It lays out the licensing requirements, the businesses in which a bank may engage, capital requirements and requirements relating to the constitution of boards of directors of banks, among other matters.

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

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

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 (IBC), which lays down the regime for the reorganisation and insolvency resolution of companies, partnerships and individuals;
• the Recovery of Debts and Bankruptcy Act, 1993 and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, which lay down the framework for debt recovery and security enforcement by banks and financial institutions;
• the Payment and Settlement Systems Act, 2007, which regulates payment systems in India; and
• specific legislation for public sector banks (government-owned banks are also subject to the 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. Its wide-ranging powers include prescribing prudential norms, laying down requirements for setting up and licensing banks (including branches of foreign banks in India) and issuing corporate governance-related norms.

India has several other financial sector regulators, including:

• the Securities and Exchange Board of India (SEBI), which is the regulatory authority for the securities market in India;
• the Insurance Regulatory and Development Authority of India (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.

In its statement on Development and Regulatory Policies in October 2023, the RBI 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. Five self-regulatory organisations have been recognised by the RBI so far:

• the Fintech Association for Consumer Empowerment, for the fintech sector;
• the Fixed Income Money Market and Derivatives Association of India, for the financial markets sector;
• the Finance Industry Development Council, for the non-banking finance companies (NBFC) sector;
• the Self Regulated PSO Association, for the payment system operators sector; and
• the Foreign Exchange Dealers’ Association of India, for authorised dealers in foreign exchange in India.

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

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

The Reserve Bank of India (Universal Banks – Licensing) Guidelines, 28 November 2025 (the “On-Tap Guidelines”) prescribe the process for obtaining a universal licence and outlines the eligibility requirements for the promoters of the applicants, shareholding requirements including minimum capitalisation requirements, etc. The process for obtaining a special licence to operate as an SFB, is prescribed under the Reserve Bank of India (Small Finance Banks – Licensing) Guidelines, 28 November 2025, while the process for obtaining a payments bank licence is prescribed under the Guidelines for Licensing of Payments Banks, dated 27 November 2014.

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 – in line with the terms of the BRA and the circulars/directions issued by the RBI. The eligible businesses, the nature of conditions, any restrictions and prudential requirements depend on the type of banking company.

On 5 December 2025, the RBI amended its regulations to ringfence banks’ participation in risk bearing, non-core activities. As a result, commercial banks and SFBs are no longer permitted to carry out certain activities – such as mutual funds and insurance business, portfolio management and broking services – through their departments; such activities are allowed to be carried out only by a subsidiary or joint venture or associate of such banks.

Furthermore, the RBI published amendments to its directions on capital market exposures on 13 February 2026 (which shall be effective from 1 July 2026), enabling commercial banks and SFBs to provide acquisition finance for onshore acquisitions, subject to certain conditions (note that bank finance for Indian entities to acquire offshore companies was already permitted under the previous regime). Commercial banks may now provide financial facility/assistance for eligible borrowers to acquire equity shares or compulsorily convertible debentures (CCDs) in a target company or its holding company – which will result in the borrower acquiring “control” over the target. The acquisition must be for the purpose of strategic investments – ie, the investment should be driven by the core objective of creating long-term value for the acquirer through potential synergies, rather than mere financial restructuring for short-term gains. As part of the acquisition finance, commercial banks can also provide funding to refinance the target’s existing debt, if such refinancing is integral to the acquisition finance transaction. Banks are also required to put in place board-approved policies on providing acquisition finance.

Licence Application Process

The licensing window is open on-tap, and 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 out in the On-Tap Guidelines.

Following this, the application is referred to a Standing External Advisory Committee (SEAC) set up by the RBI. The SEAC comprises eminent persons with experience in banking, the financial sector and other relevant areas. The tenure of the SEAC is three years. The SEAC has the right to call for more information and to 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), consisting of the RBI’s governor and 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.

Key requirements under the On-Tap Guidelines include the following.

• Eligible promoters (ie, persons 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, including, wherever applicable, all entities that form part of the promoter group) include resident individuals and professionals with ten years of experience in banking and finance at a senior level.
• Promoter/promoting entities and promoter groups should be “fit and proper” in order to be eligible to promote banks.
• The board of directors of the bank should have a majority of independent directors.
• Where promoters are individuals, the RBI assesses the “fit and proper” status of the applicants on the basis of the following criteria:
1. each of the promoters should have at least 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, the RBI assesses the “fit and proper” status of the applicants on the basis of the following criteria:
1. the promoting entity/promoter group should have at least 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 that have a diversified shareholding.

Conversion to Universal Bank

The On-Tap Guidelines also enable SFBs to convert to a universal bank, and stipulate the eligibility and conditions for SFBs to transition into universal banks. The key criteria 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.
• It must have a minimum net worth of INR1,000 crore at the end of the previous quarter (audited).
• SFBs must meet the capital-to-risk weighted assets ratio (CRAR) requirements for SFBs.
• They 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.
• There will be no new lock-in requirement for the promoters of the universal bank after the transition.
• There will be 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 Chapter I of the On-Tap Guidelines.
• Post-transition, the bank will be subject to all norms, including the non-operative financial holding company (NOFHC) structure (if applicable), as per the Reserve Bank of India (Non-Operative Financial Holding Company) Directions, 2025.

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;
• that the grant of the licence would not be prejudicial to the operation and consolidation of the banking system in a manner consistent with monetary stability and economic growth; and
• any other condition that, 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 list its shares 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 for shareholdings and change of control in banking companies in India are governed by the BRA and regulations issued by the RBI. The following key requirements/restrictions apply for acquiring or increasing control over a domestic banking company.

• The acquisition of 5% or more of the paid-up capital of a bank or total voting rights of a bank (ie, “major shareholding”) requires the prior approval of the RBI (this is not applicable to foreign banks operating through a branch in India).
• Any person acquiring a major shareholding in a bank 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 jurisdictions that do not comply with the Financial Action Task Force (FATF) are not permitted to acquire a major shareholding in the banking company.
• Foreign shareholders can hold up to 74% of an Indian 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). In addition, a non-resident entity of a country that shares a land border with India can only invest in India with the prior approval of the government; this also applies where the beneficial owner of an investment into India (ie, the beneficial owner of the investor entity) is situated in or is a citizen of any such country. Pursuant to the government of India’s Press Note No 2 (2026 Series) dated 15 March 2026, foreign investors that have non-controlling beneficial owners from land bordering countries (ie, less than 10% beneficial ownership in the investor) can invest in Indian private sector banks under the automatic route, subject to the attendant shareholding limits and reporting requirements.

Shareholding Limits

The following shareholding limits apply.

For non-promoters

• 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 or controlled to the extent of 50% or more by individuals (including the relatives and persons acting in concert).
• 15% of the paid-up share capital or voting rights of the banking company in case of financial institutions (excluding those mentioned above), supranational institutions, public sector undertaking and central/state government.

For promoters

• Except as provided in the following two paragraphs, 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 15 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.
• In case of payments banks with a net worth of less than INR500 crores, no maximum shareholding limit for promoters is prescribed. Where such payments bank is set up as a joint venture with equity partnership with a scheduled commercial bank, the scheduled commercial bank’s shareholding will be subject to restrictions and conditions applicable for banks holding shares under the BRA. In addition, when a payments bank reaches the net worth of INR500 crore, and therefore becomes systemically important, diversified ownership and listing become mandatory within three years of reaching that net worth.
• In the case of SFBs that have converted from urban co-operative banks, the period of 15 years will only begin once such bank has reached a net worth of INR300 crore.

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.

The acquisition of voting rights or shares in excess of 25% 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 following.

• The Companies Act, 2013 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”) apply if a banking company is listed, and 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 BRA.
• The RBI guidelines relating to “fit and proper” criteria for directors, compliance function in banks and prudential norms, among others
• 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 Reserve Bank of India (Commercial Banks – Governance) Directions, 2025 (the “Corporate Governance Directions”) are applicable to commercial banks and mandate 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 Directions, the following committees of the board of directors are required to be constituted for commercial banks:
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 2.1 Licences and Application Process) and ESG-related frameworks.
• Conditions and restrictions on lending to and dealing with related parties. The BRA restricts banking companies from lending to its directors and interested entities. Banking companies are also required to comply with RBI regulations on dealings with related parties. In this regard, the RBI has issued press release 2025-2026/1856, dated 5 January 2026, amending its regulations on bank lending to related parties (with effect from 1 April 2026). The key amendments are as follows.
1. Banking companies are now required to keep in place board-approved policies on lending to related parties, materiality thresholds, and systems for the monitoring of related party loans. The materiality thresholds shall be determined based on the type of bank and the bank’s available capital – and any transaction exceeding the materiality threshold would require the prior approval of the bank’s board of directors.
2. Commercial banks, SFBs and local area banks are also restricted from lending to their promoters (or their relatives) and to any shareholder holding 10% or more share capital in the bank, or any entity in which such persons have significant influence or control.
3. A foreign bank branch in India shall not lend to a company in India if a director in the foreign bank situated abroad has an interest in the company or if the company is a subsidiary of any Indian/foreign parent in which the director has an interest.
• The conditions for declaring dividends and remitting profits. Banks are required to meet prudential requirements set by the RBI in order to be eligible to declare dividends or remit profits. On 10 March 2026, the RBI issued the Reserve Bank of India (Commercial Banks – Prudential Norms on Declaration of Dividend and Remittances of Profits) Directions, 2026, which has increased the quantum of dividend that may be declared and paid by commercial banks incorporated in India to 75% of the profit after tax (PAT) for the relevant period (subject to the limits based on the Common Equity Tier 1 ratio) (the limit was earlier 40% of PAT). The directions also prescribe additional conditions for a foreign bank operating in India through branch mode to declare dividends and remit profit abroad (such as prohibiting any exceptional/extraordinary profits or income from being remitted/paid as dividends).

Key requirements applicable to the 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;
2. agriculture and rural economy;
3. banking;
4. co-operation;
5. economics;
6. finance;
7. law;
8. small-scale industry; or
9. any other matter of which special knowledge or practical experience would be useful to the banking company, in the opinion of the RBI – in addition, at least two members 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, or ten years for a director of a co-operative bank.
• Every bank should have one of its directors as chair of the board of directors, who may be appointed on a full-time or a part-time basis as such. Where they are appointed as chair on a full-time basis, they are entrusted with the management of all the affairs of the banking company, subject to the superintendence, control and direction of the board. Where they are appointed on a part-time basis, such appointment will require prior approval of the RBI, and the management of all affairs of such bank will be entrusted to a managing director, 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 do not have a substantial interest in, or are not connected with (as an employee, manager or managing agent), any company or firm carrying on trade, commerce or industry that is not a small-scale industrial concern, or are not 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 or is a director of a central co-operative bank elected to the board of a state co-operative bank in which they are a member.
• 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 appointment of full-time directors in public sector banks shall also comply with the criteria and selection process outlined in the guidelines approved by the Appointments Committee of the Cabinet of the Government of India.

The BRA prohibits the 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 Corporate Governance Directions also govern the remuneration of directors and bank executives, and apply to private and foreign commercial banks operating in India. The Corporate Governance Directions have adopted the Financial Stability Board Principles for Sound Compensation, which stipulate the following key requirements.

• 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 Corporate Governance Directions 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 Corporate Governance Directions. Any deficiencies found will increase the risk profile of the bank. The consequences may include a requirement for additional capital to be raised if the deficiencies are very significant.

Similar guidelines have been issued by the RBI to regulate the remuneration of executives and directors of SFBs, payments banks and local area banks.

In India, the Prevention of Money-Laundering Act, 2002 (PMLA) and the Unlawful Activities (Prevention) Act, 1967 provide 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 guidelines that lay down the AML/CFT requirements for various types of banks. For example, commercial banks are required to comply with the Reserve Bank of India (Commercial Banks – Know Your Customer) Directions, 2025 (“KYC Directions”).

The key requirements relating to AML/CTF under the KYC Directions include the following.

• Each bank should have a KYC policy approved by its board, which needs to cover:
1. customer acceptance policy;
2. risk management;
3. customer identification procedures; and
4. monitoring of transactions.
• The KYC policy should also incorporate provisions relating to the periodic updating of said policy.
• Every bank that 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 better management of risks.
• 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, services, transactions or delivery channels, 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 (DICGC) is a wholly owned subsidiary of the RBI and 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 that 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. On 6 February 2026, the DICGC and the RBI announced the implementation of a risk-based premium framework with effect from 1 April 2026, wherein the applicable premium card rate for deposit insurance will be determined on the basis of a risk assessment score obtained by the bank (as opposed to a flat card rate currently payable by all banks). The framework contemplates a two-tier methodology, with the tier 1 model being applicable to scheduled commercial banks other than regional rural banks, and the tier 2 model being applicable to rural regional banks, rural co-operative banks and urban cooperative banks (UCBs) (with local area banks and payment banks continuing to operate under the previous framework).

India adopted the Basel III Capital Regulations in 2013, which were fully implemented on 1 October 2021. Banks in India are required to comply with the capital adequacy framework prescribed by the RBI, which applies to banks at both a consolidated and a standalone level.

Commercial 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). SFBs and payments banks are required to maintain a minimum CRAR of 15% on an ongoing basis.

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.

Commercial banks currently need to maintain a cash reserve ratio (CRR) of 3% of the bank’s total NDTL as of the last day 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 commercial bank is required to maintain a statutory liquidity ratio (SLR) of 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 NDTL in India as of the last day of the second preceding fortnight in line with the method of valuation specified by the RBI from time to time.

Commercial 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.

Similar requirements apply for SFBs to maintain CRR, LCR and SLR.

The minimum leverage ratio (MLR) for domestically systemically important commercial banks is 4%, and 3.5% for other commercial banks. The MLR is 4.5% for SFBs and 3% for payments banks.

Regulatory Framework for Resolution or Insolvency of Banks

There is no specialised resolution regime for the 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 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 members, depositors and other creditors and employees of each of the banks. Yes 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.
• Voluntary amalgamation under Section 44A of the BRA allows a bank to voluntarily 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 (for example, where the continuance of the banking company is prejudicial to the interests of its depositors).

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 requires 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 bringing in capital;
• restriction on branch expansion;
• restrictions on capital expenditure, other than for technological upgrading within board approved limits;
• special supervisory actions; and
• 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.

In July 2024, the RBI introduced a PCA Framework for UCBs, effective from 1 April 2025, focusing on Tier 2, Tier 3 and Tier 4 UCBs. This framework replaces the Supervisory Action Framework 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 the insolvency and liquidation of financial service providers. The FSP Rules are currently applicable to systemically important NBFCs with an asset size of INR5 billion or more.

The RBI has released frameworks for the acceptance of green deposits applicable to commercial banks and SFBs, to encourage such banks to offer green deposits to customers and help increase credit flow to green projects. The key features of the green deposit frameworks include the following.

• Banks needs to adopt board-approved policies on green deposits, laying down details of the 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, covering projects that are eligible for being financed from green deposits, the process for the evaluation and selection of eligible projects, the allocation of green deposit proceeds and its third-party verification, among other matters.
• The allocation of proceeds from green deposits needs to be towards the sectors listed in the RBI’s frameworks, which include renewable energy, energy sufficiency and clean transportation. 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, are excluded from eligibility.

• The 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 deposit 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 frameworks.
• A review report (containing details regarding the amount raised under green deposits during the previous financial year, a 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.

In its monetary policy statement of October 2024, the RBI announced the formation of the Reserve Bank – Climate Risk Information System (RB – CRIS), a web-based data repository. The RB – CRIS aims to bridge and standardise data gaps, to enable more rigorous climate-risk assessments in the Indian financial sector.

The RBI also issued a draft disclosure framework on climate-related risks in February 2024. The draft guidelines propose that RBI-regulated entities 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 issue.

There is no applicable information in this jurisdiction.

Prescribing an Expected Credit Loss (ECL) Framework for Banks

The RBI has proposed to replace the incurredloss-based provisioning framework currently followed by banks, with an ECL approach, subject to a prudential floor while retaining the existing asset classification norms. In this respect, on 7 October 2025 the RBI released the draft Reserve Bank (Asset Classification, Provisioning and Income Recognition) Directions, 2025 for scheduled commercial banks (excluding SFBs, payments banks and regional rural banks) and All India Financial Institutions.

Embracing AI in the Financial Ecosystem

The RBI commissioned a committee to develop a framework for the responsible and ethical enablement of artificial intelligence (AI), which officially submitted its report on 13 August 2025 following feedback from market participants. The report prescribes certain core principles to guide AI adoption in the financial sector and outlines 26 recommendations to foster innovation while mitigating risk, such as the creation of an AI innovation sandbox, the development of indigenous AI models, the formulation of board-approved AI policies for regulated entities, and institutional capacity building at all levels.

It remains to be seen how the RBI will implement this framework, in order to balance innovation against safeguarding the interests of banks and the general public.

Proposed Amendments to the IBC

On 12 August 2025, the Insolvency and Bankruptcy Code (Amendment) Bill, 2025 (the “Bill”) was introduced in the lower house of the Parliament of India, and proposes to bring in many important amendments to the insolvency and liquidation regime in India. The Bill has been passed by the lower house of the Parliament and is expected to be tabled before the upper house of the Parliament soon. Key amendments that would affect the rights of banks as creditors include:

• revising the minimum pay-out to dissenting financial creditors under a resolution plan to an amount that is at least the lower of the liquidation value or the total value of the resolution plan if it were to be distributed through the liquidation waterfall set out in Section 53 of the IBC; and
• recognising inter-creditor agreements between creditors who are similarly placed for the purpose of the distribution of liquidation recoveries.

Importantly, the Bill also introduces a new out-of-court creditor-initiated insolvency process (CIIRP), which proposes to follow a debtor-in-possession model. It remains to be seen how banks can be incentivised to adopt CIIRP as a means of resolving early-stage stressed accounts.

Enabling Bank Lending to Real Estate Investment Trusts (REITs)

REITs are pooled investment vehicles regulated by SEBI, which invest in and operate real estate projects. On account of prudential guidelines issued by the RBI, commercial banks are currently not permitted to lend to REITs. On 13 February 2026, the RBI has published draft amendments that seek to permit commercial banks to lend to REITs, subject to conditions, including the following:

• the REIT being listed on a stock exchange and having completed at least three years of operations, with positive net distributable profit in the preceding two years;
• the REIT not being subject to any material adverse regulatory action in the previous three years;
• banks may lend only by way of loans not involving bullet/ballooning principal repayments;
• aggregate credit exposure of the bank to the borrowing REIT (and its SPVs/holding companies) shall not exceed 49% of the REIT’s asset value;
• the financing shall be fully secured by a mortgage over identified assets;
• receivables from the underlying properties shall be charged in favour of the bank and/or an escrow mechanism shall be put in place to prevent the diversion of cash flows; and
• banks shall extend financing against a specified property either at the REIT level or the SPV/holding company level, but not at both levels.

The draft amendments require banks that have lent to REITs to continuously monitor the use of loan proceeds, to ensure such funds are not utilised towards prohibited activities such as land acquisition (even where such acquisition forms part of a project).

The draft directions also require commercial banks to put in place a board-approved policy on lending to REITs.

Resuming Licensing for New UCBs

A UCB is any co-operative society registered under any local co-operative society legislation in India, which has been granted a banking licence by the RBI as a primary co-operative bank. The RBI has paused the issuance of licences to new UCBs for over two decades. Given the role of UCBs in promoting financial inclusion in remote areas/small towns, and the increasing financial health of UCBs over the years, the RBI issued a discussion paper on 13 January 2026 seeking inputs from stakeholders on resuming the provision of licences for setting up new UCBs.

The RBI set out the potential criteria for providing licences to UCBs, which include:

• a minimum capital requirement of INR300 crore (as of 31st March of the previous financial year);
• active operations for at least ten years and a good financial track record for at least five years; and
• assessed CRAR of not less than 12% and NNPA ratio of not more than 3%.

The RBI has indicated that detailed draft guidelines will be released after the receipt of public comments.

Tightening of Banks’ Sales and Advertisement Activities

The RBI published draft amendments to its regulations on 11 February 2026, which seek to further regulate banks’ conduct in the advertising, marketing and sale of financial products – keeping in mind customer appropriateness and suitability. These amendments propose to require banks to put in place comprehensive policies for the advertising, marketing and sale of financial products/services (including criteria for hiring direct selling or marketing agents). Under the proposed amendments, banks will be required to assess the suitability and appropriateness of the financial product/service for a customer before marketing/selling that product or service to that customer. Banks will also need to ensure that their user interfaces do not deploy any dark pattern, and that products/services are sold to customers only with their explicit consent.

Under the proposed amendments, banks will also be required to establish a mechanism to receive feedback from customers on their financial products/services. Where any mis-selling of a product/service has been established, the bank shall refund the entire amount paid by the customer and compensate for any loss suffered by the customer, as per its internal policies.

Limiting Customer Liability in Unauthorised Electronic Banking Transactions

The RBI published draft amendments to its directions in relation to responsible business conduct on 6 March 2026. These proposed amendments include requiring banks to put in place a policy to cover aspects of customer protection in electronic banking transactions, and to design their systems and procedures to make customers feel safe about carrying out electronic banking transactions. These amendments seek to protect the interests of customers in fraudulent (both authorised and unauthorised) electronic banking transactions, and to introduce a mechanism to compensate customers for certain small-value fraudulent electronic banking transactions.