The Reserve Bank of India (RBI) has taken a major leap in reshaping the banking ecosystem with a set of sweeping regulatory reforms aimed at enhancing transparency, accountability, customer protection, financial stability, and digital efficiency. These changes, spread across digital banking, co-lending frameworks, liquidity norms, KYC regulations, and more, are designed to make the Indian financial system more resilient and consumer-centric.
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This blog dives deep into the most important regulatory
updates announced by the RBI in 2025, most of which will take effect in 2026.
Whether you’re a banker, policymaker, business owner, or an informed customer,
here’s everything you need to know.
1. Digital Banking: No More Third-Party Promotions Without
RBI Approval
In July 2025, the RBI released a draft regulation that
fundamentally alters how banks use their digital platforms. This regulation
prohibits banks and NBFCs from displaying or promoting third-party products and
services—especially those owned by promoters or subsidiaries—unless explicitly
approved by the RBI.
Key Features:
Customer Consent is Mandatory: Banks must obtain clear
consent before enabling digital banking features.
“View-Only” Mode: A non-transactional mode must be offered
to customers as an option.
Security & Risk Mitigation: Enhanced scrutiny of digital
banking infrastructure to mitigate cybersecurity risks.
This move aims to prevent the misuse of customer trust and
personal data, which is increasingly relevant in the age of open banking and
digital wallets.
2. Co-Lending Framework Finalised: A Boon for MSMEs and
NBFCs
Effective January 1, 2026, RBI has finalized rules for the
Co-Lending Model (CLM) between banks and NBFCs. This framework allows banks to
partner with non-banking financial companies to jointly lend to customers using
a shared model.
Highlights:
Blended Interest Rate: Combines rates from both entities
into a fair lending rate.
Single KYC Process: No more duplication of KYC checks.
Funding Commitment: Banks must commit funding upfront.
Escrow Mechanism: All loan collections go through a secure,
monitored escrow account.
Loan Transfer Deadline: Banks must acquire their share of
the loan within 15 days.
The updated framework encourages better credit flow to
underserved sectors like MSMEs and agriculture.
3. Liquidity Coverage Ratio (LCR) Relaxation: ₹3 Trillion
Liquidity Boost
RBI’s revised LCR norms will take effect from April 1, 2026, and are expected to release ₹3 trillion into the banking system.
This is a major structural reform. The LCR—designed to
ensure banks hold enough high-quality liquid assets (HQLAs) to survive a 30-day
stress scenario—was previously conservative. The update allows for some digital
and tech-enabled liabilities to be excluded from the high LCR calculation,
freeing capital for credit expansion.
Implication: Experts predict this move could enhance overall
bank credit growth by 1.5–2% over the next fiscal year.
4. Rationalised Provisioning for Infrastructure Loans
Previously, banks had to set aside high provisioning for
under-construction infrastructure and commercial real estate loans. That
changes from October 1, 2025:
Infra Projects: 1% provisioning (down from 5% proposed
earlier).
Commercial Real Estate: 1.25% provisioning.
Extended Deadlines: Infra projects get up to 3-year
extension; real estate, up to 2 years.
This is a significant regulatory relief aimed at
accelerating infrastructure financing while maintaining safeguards.
5. New Caps on Investments in AIFs (Alternative Investment
Funds)
The RBI has proposed a stricter investment framework for
banks and NBFCs investing in AIFs to mitigate concentration and systemic risks.
15% cap on aggregate exposure by all lenders in a single AIF
scheme.
5% individual cap for any single bank/NBFC.
10% cap on the total corpus a bank or NBFC can invest in
AIFs.
This will impact private equity and venture capital
investments made via banking entities.
6. Revamped Priority Sector Lending (PSL) Norms
From April 1, 2025, the RBI has updated PSL guidelines:
New targets for renewable energy, education loans, and
affordable housing.
Urban Cooperative Banks (UCBs) now have a reduced PSL
obligation: 60% of adjusted net bank credit (from earlier 75%).
This realignment aims to reduce burden on smaller banks
while keeping focus on national development goals.
7. UCBs Brought Under Prompt Corrective Action (PCA)
Framework
The SAF (Supervisory Action Framework) has been replaced
with PCA for Urban Cooperative Banks, effective from April 2025. The PCA
evaluates banks based on:
Capital Adequacy
Net NPA Ratio
Return on Assets
UCBs falling short on these metrics face restricted
expansion, dividend payouts, and may be subject to mergers or restructuring.
8. Digital Lending Guidelines
To tackle rising complaints against digital lenders, RBI
introduced more stringent norms in May 2025:
Compulsory Agreement with LSPs: Banks must formalize
partnerships with Lending Service Providers (LSPs).
No Auto-Credit Line Increases without borrower consent.
Loan Disclosure: All terms must be shared via SMS/email.
Digital Recovery Records: All communications with defaulters
must be recorded to avoid harassment.
By June 15, 2025, all regulated lending apps were required
to register with RBI’s CIMS portal.
9. KYC, Re-KYC, and Inoperative Account Handling
RBI is simplifying and digitizing KYC procedures to boost
inclusion:
No transaction freezes for low-risk customers until June 30,
2026.
Video KYC accepted as full face-to-face verification.
Business Correspondents (BCs) allowed to collect KYC
declarations.
Banks must send 3 advance and 3 post-due reminders before
any account action.
In August 2025, RBI instructed banks with high KYC pendency
to hold mega Re‑KYC camps and streamline systems.
10. Gold and Silver Loans: New Norms from April 2026
The new framework segments gold/silver loans based on usage:
Up to ₹2.5 lakh: LTV capped at 85%.
> ₹5 lakh: LTV capped at 75%.
Only gold jewellery, ornaments, or coins are acceptable—no
bullion or ETFs. Banks must return pledged assets within 7 days after loan
closure or face ₹5,000/day penalties. Auction procedures are also strictly
defined.
11. One-Time Settlement (OTS) and Borrower Protection
To improve the resolution of bad loans:
Banks must offer OTS options with interest waivers.
No adverse impact on credit scores if borrower complies with
OTS.
Borrowers must be notified digitally of any recovery
actions.
Physical recovery steps require SARFAESI-compliant
processes.
12. Cash Transaction Rules and Domain Security
PAN/Aadhaar mandatory for transactions > ₹50,000/day.
Withdrawals > ₹20 lakh/month may attract TDS under Sec
194N.
Business deductions > ₹10,000/day in cash may be
disallowed.
To fight phishing and fake bank websites, RBI has mandated
all banks use domains ending in “.bank.in” or “.fin.in” for fintechs and NBFCs.
|
Area |
Key Policy Highlights |
Effective Dates |
|
Digital Banking |
Blocking third-party ads, customer consent, view-only mode |
Draft issued Jul 2025 |
|
Co-Lending |
Single KYC, escrow, blended rates, transfer limits |
Jan 1, 2026 |
|
Liquidity (LCR) |
Relaxed HQLA norms, frees up ₹3tn |
From Apr 1, 2026 |
|
Project Loan Provisioning |
1% (infra), 1.25% (CRE), extension caps |
Oct 1, 2025 |
|
AIF Exposure Limits |
Caps on bank/NBFC investments |
Proposed May 2025 |
|
PSL & UPI Regulation |
Higher PSL caps, weekly updates, explicit consent |
Apr 1, 2025 |
|
UCB PCA Framework |
PCA replaces SAF for UCBs |
Apr 1, 2025 |
|
Digital Lending Norms |
LSP contracts, data/privacy, CIMS registration |
May–Jun 2025 |
|
KYC / Re-KYC |
Relaxed timelines, video KYC, reminder framework |
Jan 1, 2026 |
|
DDA, LEF Updates |
DDAs extended; broader LEF exemptions |
Mid–2025 |
|
Gold/Silver Loans |
Standardization and borrower protections |
Apr 1, 2026 |
|
DEA Fund |
Streamlined unclaimed deposit management |
Oct 1, 2025 |
|
OTS & Recovery |
Fair settlement, digital records |
2025 |
|
Home Loans & Cash Rules |
Document return, cash limits, digital security |
Staged 2025 |
Conclusion: Towards a Safer, Simpler Banking Environment
The RBI’s regulatory push marks a significant shift in
Indian banking. These reforms prioritize:
Customer rights and data privacy,
Operational resilience through better provisioning and
liquidity norms,
Ease of doing business via co-lending and digitization.
Banks that proactively align with these changes stand to
gain in efficiency, reputation, and growth potential. As these rules roll out
through 2025 and 2026, proactive adaptation will be the key differentiator in a
transforming financial ecosystem.