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Control functions in banks: RBI proposes Consolidation exercise

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  • Payal Agarwal, Partner | corplaw@vinodkothari.com
Draft proposals provide definitional and role clarity, highlighting a comprehensive overhaul of control and assurance functions for banks with unified appointment standards, enhanced Board oversight, and proportional relaxations for specific categories.

Highlights:

  • Standardised definitions;
  • Unified framework for CRO/CCO/HIA;
  • Optional group CRO/CCO;
  • Periodic external review mandated for NBFC-UL;
  • Flexibility on eligibility criteria for CRO/CCO/HIA;
  • Reporting lines clarified;
  • Foreign banks: “Comply or explain” relaxation;
  • Quarterly Board meetings without Senior Management;
  • CRO credit committee role;
  • Dual-hatting ambiguity;
  • Enhancement of compliance function.

Keeping up with the consolidation exercise undertaken by the RBI last year for the circulars pertaining to Department of Regulation (DoR), RBI announced in its 8th April Statement on Developmental and Regulatory Policies the consolidation of its supervisory instructions. Following the same, draft Directions were issued. Further, for consolidation of instructions issued by the RBI on control functions, viz., compliance, risk management and internal audit, RBI has issued draft Governance Directions, on 10th June, 2026. 

Note that, while the press release refers to ‘Harmonisation and Consolidation of Instructions on Control / Assurance Functions’, the draft Directions go beyond a simple consolidation exercise, rather, includes some changes as compared to the existing circulars of DoS and DBS. The key changes for commercial banks have been discussed below. For NBFCs, refer to our article here. 

Key Proposals under Draft Directions

  • Important concepts defined: The draft Directions contains definitions of various relevant concepts in relation to control and assurance functions. 
  • Instructions for CRO, CCO and HIA aligned: The draft Directions provide a common set of instructions, eligibility criteria, appointment conditions, reporting lines etc for each of the three heads of the relevant control and assurance functions, viz., Chief Risk Officer (CRO), Chief Compliance Officer (CCO) and Head of Internal Audit (HIA). 
  • Group level oversight of CRO and CCO: For banks that are part of a group consisting of more than one financial entity, a Group CRO (GCRO) and Group CCO (GCCO) may be appointed for group level risk oversight/ compliance and co-ordination. This is not a mandatory requirement, however, may be adopted as a part of group-level control and  assurance functions. 
  • Periodic external review of control functions: For benchmarking of practices and strengthening effectiveness of the functions, the draft Directions require the risk management function, Quality Assurance and Improvement Program (QAIP) of compliance and internal audit functions to periodic external review. In case of NBFCs, external review is proposed to be mandated for risk management function only, and limited to NBFC-UL entities. 
  • Eligibility conditions to be determined by internal policy: The draft Directions omit conditions on minimum no. of years’ of experience and age limitations for appointment of CRO, CCO and HIA. The September, 2020 circular of RBI on Compliance functions in banks and Role of Chief Compliance Officer (CCO) currently requires the CCO to have an overall experience of at least 15 years (including 5 years in audit function) and an age limit of 55 years. The draft Directions require adequate domain knowledge and relevant experience in the respective fields, commensurate with the size, complexity, and risk profile of the bank and age as prescribed in the internal policy of the bank. 
  • Employer-employee relationship mandatory: The draft Directions clarify that consultants, advisors, part time auditors or individuals who are neither on the rolls of the bank/group entity nor have any contractual employer-employee relationship with the bank/group entity shall not be appointed/designated as CRO, CCO or HIA or Group CRO/CCO.
  • Clarification on reporting lines: The draft Directions makes a distinction between administrative and functional reporting lines, viz., administrative reporting to MD& CEO and functional reporting to board/ board committee. 
  • Comply or explain approach for foreign banks: In case of foreign banks, a relaxation is proposed by making the applicability of the instructions on control and assurance functions on a “comply or explain” basis, thus allowing deviations from the requirements, subject to submission of reasonable explanation for prior approval of DoS, RBI.  

Omission of “dual hatting” restriction: can the same person be appointed as CCO or CRO and HIA? 

The draft Directions seem to have omitted the “dual hatting” restrictions, although it requires each of the three designates to be “independent of business lines, free from conflicts of interests…”. The internal audit function, headed by HIA is required to do independent evaluation of governance, risk management, compliance, internal controls, business lines, support functions, outsourced activities, etc., ensuring assurance across the entire organisation. Hence, it would be counter-intuitive to suggest that the HIA can head the compliance or risk management functions, while being responsible for providing independent assurance on the same. 

Some of our resources on Compliance, Risk Management and Internal Audit functions: 

RBI Clarifies Uniform Asset Classification Under Co-Lending Confined to the Co-Lent Exposure Only

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Simrat Singh | finserv@vinodkothari.com

Background

The Co-Lending Arrangements Directions, 2025 (now subsumed within Para B of the RBI (Non-Banking Financial Companies — Transfer and Distribution of Credit Risk) Directions, 2025) introduced a requirement for uniform borrower-level asset classification across co-lending partners. Paragraph 124 of the Directions provides:

“NBFCs shall apply a borrower-level asset classification for their respective exposures to a borrower under CLA, implying that if either of the REs classifies its exposure to a borrower under CLA as SMA / NPA on account of default in the CLA exposure, the same classification shall be applicable to the exposure of the other RE to the borrower under CLA. NBFCs shall put in place a robust mechanism for sharing relevant information in this regard on a near-real time basis, and in any case latest by end of the next working day. “

The intent of this provision, read alongside RBI’s long-standing IRACP framework, was clear: credit stress is a condition of the borrower, not of a specific loan. Once any co-lender classified its share of the co-lent exposure as SMA or NPA, the other co-lender was required to mirror that classification for its own share.

The Interpretive Question

The phrase “under the CLA” in paragraph 124 gives rise to 2 divergent methods:

  1. Borrower-level classification applies across all exposures of a co-lender to the borrower, including non-co-lent loans, once any default arises in the co-lent exposure; or
  2. The uniform classification obligation is confined to the co-lent exposure itself. A default in the co-lent loan does not compel reclassification of the co-lender’s non-colent loans to the same borrower, nor does a default in an independent loan trigger any obligation under paragraph 124.

We had earlier made a case for interpretation 1 above in our write-up Does Co-lending Make Default a Communicable Disease? keeping in mind the principle of borrower-level asset classification under IRACP norms. However, an RBI clarification received by a regulated entity provides otherwise. 

The RBI Clarification

RBI has clarified that the uniform asset classification requirement under paragraph 124 is limited to the exposure under the co-lending arrangement. It does not extend to independent loans of a co-lender to the same borrower that are outside the CLA.

The implications of this clarification are as follows:

  • Co-lent loan defaults:
    • If Co-Lender 1 classifies its share of the co-lent loan as SMA/NPA, Co-Lender 2 must apply the same classification to its share of that loan. However, Co-Lender 2 is not required, solely on account of the co-lent loan defaulting, to reclassify any separate, independent loan it holds to the same borrower outside the CLA.
  • Standalone loan of Co-Lender 2 defaults i.e. default in an independent loan:
    • A default or downgrade by Co-Lender 2 on a non-CLA loan to the same borrower does not, of itself, trigger any information-sharing obligation or classification consequence for Co-Lender 1 under paragraph 124.

It is, however, also worthwhile to mention that REs continue to remain independently subject to their own borrower-level classification obligations under the IRACP norms. Where a co-lender has knowledge of default in a borrower’s other obligations, its own prudential framework may require appropriate classification of its standalone exposures. Further, with fortnightly CIC reporting coming in effect from July 2026, co-lenders will have near-regular visibility into a borrower’s credit profile across lenders. It would therefore be increasingly difficult for a co-lender to retain a favourable asset classification on a standalone exposure where the borrower’s credit record reflects a default on other loans. 

Impact on Ind AS entities is also worth noting. While the RBI clarification limits the uniform asset classification requirement to the co-lent exposure, entities following Ind AS may still need to evaluate whether a default on the co-lent loan constitutes a Significant Increase in Credit Risk (SICR) for the borrower. The occurrence of default on any material obligation may indicate deterioration in the borrower’s creditworthiness and could be a relevant factor in assessing the staging of other exposures to the same borrower. Accordingly, even though asset classification consequences may not extend beyond the co-lent exposure, the information regarding such default may influence the ECL assessment and provisioning for other loans held by the lender, depending on its ECL framework.

See our other resources of Co-lending here: https://vinodkothari.com/co-lending/

RBI attempts to woo fleeing foreign investors

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– Vinita Nair and Saloni Khant | corplaw@vinodkothari.com

– Updated as on June 20, 2026.

In light of the outflow of $13.7 billion by foreign institutional investors in less than 2 months and the consequent fall in rupee, the RBI governor has issued a press release dated June 5, 2026 introducing various measures to pull in foreign capital such as slashing tax on investment in G-secs, removing restrictions thereon, enabling foreign investment in G-secs with longer tenure, raising investment limits for NRI, OCIs and PROIs in listed equity, concessional forex swap for ECB by PSUs and subsidising hedging cost for FCNR (B) deposits.

Government Securities

  • FPIs, OCIs, and NRIs permitted to invest in 15, 30 and 40 year G-secs under FAR
  • Ease of investment in G-Secs for FPIs under the General Route
    • FPIs can now invest under the general route in government securities without these restrictions w.r.t. Short-term investments limits, Security-wise limit and Concentration limits:
      • Short-term investments limit: Investment in G-secs (maturity up to 1 year) were capped at 30% of the FPI’s total investment in each category.
      • Security-wise limit: Total of investments by FPI and those made through the Special Rupee Vostro Account Route in CG securities were capped at 30% of the security’s outstanding stock.
      • Concentration limit: Investment in G-secs by an FPI (with related FPIs) was capped at 15% and 10% of the prevailing investment limit of long-term and other FPIs respectively.
  • Merging of ‘general’ and ‘long-term’ investment limits by FPI in G-secs

The limits of investment by FPIs in G-Secs, previously bifurcated in ‘general’ and ‘long-term’ investments have now been merged for better flexibility. The erstwhile limits are provided in RBI Circular dated April 6, 2026, now clubbed as:

  • No capital gains tax for foreign investments in G-secs

An ordinance dated June 5, 2026 exempts interest earned as well as capital gains on transfer, sale or exchange of G-secs held by Foreign Institutional Investor or a Bank for International Settlements w.e.f. April 1, 2026.         

These measures are expected to increase returns for FPIs from Indian G-Secs by 15-20%[1].

Listed Equity Investments

ECBs by PSU and OFCBs

  • Government provides concessional forex swap for ECB by PSUs and OFCBs
    • The inherent currency risk of ECBs is hedged using forex swaps. The cost of forex swaps often wipes out the advantage of foreign borrowings. This relief expects an increase in ECBs from the usual $10–12 billion to $15 billion.[2]
    • The framework was notified vide RBI circular dated June 8, 2026.
    • Applicability of swap facility:
      • For ECBs with minimum maturity of 3 years;
      • For undrawn portion of existing ECBs;
      • Not available for ECBs with embedded options or raised for refinancing / repayment of existing ECBs;
      • OFCBs[3] raised by AD Cat-I Banks with minimum maturity of 3 years.
    • Features of swap facility:
      • Facility for ECBs drawdown/ OFCB flows received from June 8 to December 31, 2026 and remains open till January 15, 2027;
      • Facility available in USD only for ECB raised in any currency;
      • Maximum tenure of swap as per maturity schedule of ECB/ OCFB upto maximum 5 years;
      • Swap available at a fixed rate of 1.5 per cent per annum compounded semi-annually; 

FCNR Deposits

  • Government to bear full hedging cost of AD Cat-I Banks for fresh FCNR (B) deposits till September 30, 2026
    • Fresh 3 to 5 year Foreign Currency Non-Resident (Bank) Deposits made by NRIs and PIOs will benefit from this move. Banks may be able to raise up to $40 billion.[4]
    • The RBI Circular dated June 8, 2026 makes the framework immediately effective:
      • Facility for deposits mobilised from June 8 to September 30, 2026 and remains open till October 16, 2026;
      • Banks free to price deposits but overall ceiling as per the RBI’s guidelines. W.e.f. June 17, 2026 to September 30, 2026, RBI withdraws interest rate ceiling on these deposits (previously Overnight Alternative Reference Rate for the respective currency/ Swap plus 350 basis points) including those renewed on maturity. The rationale is to empower banks to pass the benefits of the swap facility to the depositors.
      • Tenor of swap in line with tenor of deposit;
      • Minimum lock-in period of 1 year for deposits, thereafter as per Bank’s policy;
      • Swaps once availed cannot be cancelled;
      • Facility available only once a week for FCNR(B) deposits mobilised in USD in previous week and pending to be covered under facility;
      • Swap facility available in US Dollars only.
  • RBI exempts[5] such FCNR (B) Deposits from CRR and SLR requirements from June 8 to September 30, 2026.
  • Additionally, RBI announced a similar withdrawal w.e.f. June 17, 2026 to September 30, 2026 for ceilings on interest rates for Rupee Deposits of Non-Residents i.e. NRE deposits with a tenor of at least 3 years including deposits renewed on maturity.         

RBI provides liberty to exclude the swap positions under the above facilities related to FCNR (B) deposits, ECBs and OFCBs from the limit of USD 100 million under RBI Circular dated March 27, 2026. Refer to RBI’s FAQs on the swap facilities here.

Reporting of ECBs, OFCBs and FNCR Deposits

  • W.e.f. June 22, 2026, AD Cat-I Banks to report data for ECBs, FCNR Deposits and OFCBs covered under RBI’s swap facility.
  • Reporting to be done on a daily basis by 6 pm.
  • For first reporting on June 22, 2026, data from June 8, 2026 till June 19, 2026 to be submitted.

Realization of export proceeds

  • Timeline for realisation of export proceeds restored back to 9 months from 15 months

On November 13, 2025, the FEM (Export of Goods and Services) Directions were amended to increase the timeline for realisation of export proceeds including those made by specified entities such as SEZ / status holder exporter / EOUs etc. from 9 to 15 months as an EODB measure. [See the brief highlights here.] The latest amendment aims to expedite export receipts.

[1] Source: https://www.thehindubusinessline.com/money-and-banking/govt-sops-to-boost-fpi-returns-from-gsec-by-15-20/article71065897.ece

[2] Source: https://www.business-standard.com/economy/news/psu-ecb-borrowings-may-cross-15-billion-on-rbi-s-concessional-swap-window-126060700598_1.html

[3] Overseas Foreign Currency Borrowings

[4] Source: https://economictimes.indiatimes.com/industry/banking/finance/banking/banks-to-be-told-to-step-up-fcnr-b-deposits/articleshow/131573654.cms?from=mdr#:~:text=Banks%20will%20now%20encourage%20more,attract%20significant%20foreign%20currency%20inflows. 

[5] Hyperlinked to amendment to Directions for Commercial Banks. Similar amendments to CRR and SLR Directions for Regional Rural Banks, Rural Co-operative Banks, Urban Co-operative Banks and Small Finance Banks.

[6] previously Overnight Alternative Reference Rate for the respective currency/ Swap plus 350 basis points

Refer to our other resources:

  1. Resource Centre on FEMA
  2. Resource Centre on ECB
  3. SOP for FDI approval rationalised for Border- Country Investment
  4. Open but Guarded Gates: Relaxations for Border-Country Investments

Disaster, Distress and Resolution: Decoding RBI’s NBFC Relief Framework

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-Jeel Ranavat, Assistant Manager (jeel@vinodkothari.com)

Overview

A natural calamity does not just damage property or disrupt livelihoods — it can instantly push otherwise disciplined borrowers into financial stress. Loan repayments become difficult not because borrowers are unwilling to pay, but because businesses halt, incomes disappear, and economic activity comes to a standstill. Recognising this reality, the RBI has introduced a comprehensive new framework on relief measures in areas affected by natural calamities  (Natural Calamities Directions) for lenders that fundamentally changes how borrower distress arising from calamities is to be handled.

RBI has moved towards a more structured and time-bound relief mechanism — one that focuses not only on faster restructuring and borrower protection, but also on ensuring prudential discipline for lenders. From proactive resolution and protection against sudden NPA downgrades to stricter timelines, additional provisioning norms, and disaster-sensitive credit assessment.

Read more →

RBI’s Pillar 3 Proposes Disclosure of Liquidity Risks and Measures 

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Move from Narrative Disclosures to Structured Transparency

– Payal Agarwal, Partner | payal@vinodkothari.com 

The draft Capital Adequacy Amendment Directions of RBI propose changes to the existing Directions in relation to the Pillar 3 disclosure requirements (Market Discipline). The amendments are proposed to be made towards better alignment of the regulatory disclosure framework with the Basel norms. In addition to the new disclosure requirements with respect to Liquidity Risks and Macro-prudential Supervisory measures, the Draft proposes a move from narrative disclosures to a more structured, comprehensive transparency. 

Proposed to be effective from: quarter ended 30th September, 2026 

Highlights of the proposal 

  • Banks to have formal disclosure policy for Pillar 3 data
    • Key elements of the policy to be described in the year-end Pillar 3 report or cross- referenced to another location where they are available 
  • Formal attestation by one or more WTDs in writing that Pillar 3 disclosures have been prepared in accordance with the board-agreed internal control processes 
  • Safeguarding proprietary and confidential information:
    • Disclosure not required for proprietary or confidential information that may reveal the position of a bank or contravene its legal obligations 
    • More general information about the subject matter including the fact that specific items of information have not been disclosed and the reasons thereof. 
  • Guiding principles of Pillar 3 disclosures specified
    • Disclosures to be clear, comprehensive, meaningful, consistent and comparable
  • Disclosure of data points for previous period not required in case of  first-time reporting of a metric
    • For permitted transitions, the transitional data shall be reported unless the bank is compliant with fully loaded requirements 
  • For regulatory disclosures on the website, archive period proposed to increase to 10 years, against existing 3 years’ requirement 

Disclosure on Liquidity Risk Management measures

The proposed format, amongst others, incorporates a new field for liquidity related disclosures. This includes, qualitative and quantitative disclosures on liquidity risk management aspects, alongside disclosure of Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR):  

Qualitative disclosures: LRM governance Funding strategy including policies on diversification and tenor Liquidity risk mitigation techniquesExplanation of stress testingOutline of contingency funding plans Quantitative disclosures: Measurement tools for structural liquidity and cash flow projections Concentration limits on collateral pools and sources of fundingLiquidity exposures and funding needs and entity and branch level including limitations on transferability of liquidityBalance sheet and off-balance sheet items broken down into maturity buckets and the resultant liquidity gaps

Contents of disclosure (Annex III)

Proposed Format

Existing Format

New Disclosures

Frequency of Disclosure

1. Overview of risk management, key prudential metrics, and RWA

  

Template KM1: Key metrics (at consolidated group level)

New addition in the form of summary table, cross-linked to respective detailed tables
  • Liquidity Coverage Ratio (LCR)
  • Net Stable Funding Ratio (NFSR)

Quarterly

Table OVA: Bank risk management approach

General qualitative disclosure requirement under Risk Exposure and Assessment

More granular information such as risk governance structure, qualitative information on stress testing etc. 

Annual

Template OV1: Overview of RWA

No specific equivalent

RWAs and minimum capital requirements broken down for various risk categories: credit, CCR, market, operational etc.

Quarterly

2. Linkages between financial statements and regulatory exposures

  

Table LIA: Explanations of differences between accounting and regulatory exposure amounts

New table, some information overlap with Table DF-1: Scope of application

Qualitative explanations on the differences observed between accounting carrying value and amounts considered for regulatory purposes

Annual

Table LIB: Outline of the differences in the scope of consolidation (entity by entity)

Corresponds to Table DF-1: Scope of application

–

Annual

Template LI1: Differences between accounting and regulatory scopes of consolidation and mapping of financial statement categories with regulatory risk categories

No specific table; however, overlaps with Table DF-12: Composition of capital – reconciliation requirements

Breakdown of each component of balance sheet by risk framework — credit risk, CCR, securitisation, market risk, or not subject to capital requirements/ capital deduction 

Annual

Template LI2: Main sources of differences between regulatory exposure amounts and carrying values in financial statements

No specific table; source of material differences between its total balance sheet assets (net of on-balance sheet derivative and SFT assets) as reported in its financial statements and its on-balance sheet exposures to be disclosed and detailed in line 1 of the common disclosure template.

Detailed template covers sources of differences, viz., valuation differences, netting differences, provisions, and prudential filters — by risk category column.

Annual

Template PV1 – Prudent valuation adjustments (PVAs)

–

Only a single line-item within regulatory capital composition table

Break down PVAs by type (CVA loss, closeout cost, early termination, model risk, operational risk, funding costs, administrative costs, other) and by instrument category (equity, rates, FX, credit) and book (trading / banking).

Annual

3 Composition of Capital

  

Table CCA – Main features of regulatory capital instruments

Table DF-13: Main features of regulatory capital instruments

–

Ongoing, at least on a semi-annual basis

Template CC1 – Composition of regulatory capital

Table DF-11: Composition of capital

–

Semi-annual

Template CC2: Reconciliation of regulatory capital to balance sheet

Table DF-12: Composition of capital – reconciliation requirements

Higher granularity provided under each line-item

Semi-annual

4 Remuneration

  

Table REMA – Remuneration policy

Qualitative disclosures under Table DF-15: Disclosure requirements for remuneration

  

Annual

Template REM1 – Remuneration awarded during financial year

Quantitative disclosures under Table DF-15: Disclosure requirements for remuneration

More granular details sought 

Annual

Template REM2: Special payments

Annual

Template REM3: Deferred remuneration

Annual

5. Credit Risk

  

Table CRA – General qualitative information about credit risk

Table DF-3: Credit risk: general disclosures for all banks

Specific disclosure w.r.t. credit risk function, viz., 

  • Structure and organisation of the credit risk management and control function
  • Relationships between the credit risk management, risk control, compliance and internal audit functions etc. 

Annual

Template CR1: Credit quality of assets

  

Semi-annual

Template CR2: Changes in stock of non-performing loans and debt securities

  

Semi-annual

Table CRB: Additional disclosure related to the credit quality of assets
  • Breakdown of restructured exposures between standard and non-performing exposures.

Annual

Table CRC: Qualitative disclosure related to credit risk mitigation techniques

Table DF-5: Credit risk mitigation: disclosures for standardised approaches

–

Annual

Template CR3: Credit risk mitigation techniques – overview

–

Semi-annual

Table CRD: Qualitative disclosures on bank’s use of external credit ratings under the standardised approach for credit risk

Table DF-4 – Credit risk: disclosures for portfolios subject to the standardised approach (qualitative)

  

Annual

Template CR4: Standardised approach – credit risk exposure and Credit Risk Mitigation (CRM) effects

–

On-balance sheet and off-balance sheet exposures for each asset class:

  • Before CCF and CRM 
  • Post CCF and CRM
  • RWA and RWA density

Semi-annual

Template CR5: Standardised approach – exposures by asset classes and risk weights

Table DF-4 – Credit risk: disclosures for portfolios subject to the standardised approach (quantitative)

Risk weight buckets increased; existing format  divides into 3 major risk buckets

Semi-annual

6. Counterparty credit risk

  

Table CCRA – Qualitative disclosure related to counterparty credit risk

Table DF-10: General disclosure for exposures related to counterparty credit risk

–

Annual

Template CCR1 – Analysis of counterparty credit risk (CCR) exposure by approach

Structured in a tabulated form with more granular data requirements

Semi-annual

Template CCR3 – CCR exposures by regulatory portfolio and risk weights

Semi-annual

Template CCR4 – Composition of collateral for CCR exposures

Semi-annual

Template CCR5 – Credit derivatives exposures

  

Template CCR6 – Exposures to central counterparties

  

7. Securitisation

  

Table SECA – Qualitative disclosure requirements related to securitisation exposures

Table DF-6: Securitisation exposures: disclosure for standardised approach

List of:

  • affiliated entities (i) that the bank manages or advises and (ii) that invest either in the securitisation exposures that the bank has securitised or where the bank acts as facility provider.
  • a list of entities to which the bank provides implicit support and the associated capital impact for each of them

Annual

Template SEC1 – Securitisation exposures in the banking book

Bifurcation based on: 

  • bank as an originator and as an investor 
  • STC and others 

Semi-annual

Template SEC2 – Securitisation exposures in the trading book

Semi-annual

Template SEC3 – Securitisation exposures in the banking book and associated regulatory capital requirements – bank acting as originator

–

Semi-annual

Template SEC4 – Securitisation exposures in the banking book and associated capital requirements – bank acting as investor

–

Semi-annual

8. Market Risk

  

Table MRA – Qualitative disclosure requirements related to market risk

Table DF-7: Market risk in trading book

Elaboration of qualitative disclosures, viz., 

  • Strategies and processes 
  • Structure and organisation of the market risk management function
  • Scope and nature of risk reporting and/or measurement systems.

Annual

Template MR1 – Market risk under the standardised approach

Classification of positions: 

  • Outright products 
  • Options – Simplified approach, delta-plus method or scenario approach

Semi-annual

9. Operational Risk

  

Table ORA: Disclosure related to operational risk and operational resilience

Table DF-8: Operational risk

Elaboration of qualitative disclosures

  

10. Interest rate Risk

  

Table IRRA: Disclosure related to Interest Rate Risk

Table DF-9: Interest rate risk in the banking book (IRRBB)

Elaborated qualitative disclosures

Annual for qualitative disclosure and semiannual for quantitative disclosure

11. Macroprudential supervisory measures

  

Template GSIB1 – Disclosure of G-SIB indicators

–

12 indicators used in the assessment methodology of the G-SIB framework

Annual

Template CCyB1 – Geographical distribution of credit exposures used in the countercyclical capital buffer

–

Geographical breakdown of private sector credit exposures (values and RWAs) and Countercyclical capital buffer rate for computation of the bank-specific countercyclical capital buffer rate and amount

Semi-annual

12. Leverage Ratio

  

Template LR1 – Summary comparison of accounting assets vs leverage ratio exposure measure

Table DF 17- Summary comparison of accounting assets vs. leverage ratio exposure measure

–

Quarterly

Template LR2 – Leverage ratio common disclosure template

Table DF-18: Leverage ratio common disclosure template

–

Quarterly

13. Liquidity

  

Table LIQA – Liquidity risk management

–

See above

Annual

Template LIQ1 – Liquidity coverage ratio (LCR)

–

Unweighted and weighted values of

  • Total High Quality Liquid Assets 
  • Cash outflows and cash inflows (component-wise)

Quarterly 

Template LIQ2 – Net stable funding ratio (NSFR)

–

Unweighted value by residual maturity and weighted value of

  • Available Stable Funding (ASF) Item (each component)
  • Required stable funding (RSF) Item (each component)

Semi-annual

 

Remote Device Locking: RBI proposes highly guarded path

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Some proposals may be impractical

– Jeel Ranavat, Assistant Manager| finserv@vinodkothari.com 

On May 21,2026, RBI issued revised draft RBI (Non-Banking Financial Companies – Responsible Business Conduct) Amendment Directions, 2026  that contains  several paragraphs, not being there in the earlier Draft RBI (Non-Banking Financial Companies – Responsible Business Conduct) Second Amendment Directions, 2026 version, which permit a financier of devices to be able to remotely lock its partial functionality, on continued non-payment of dues. Among other safeguards, such as preserving the basic functionality (access to internet, incoming calls, emergency SOS features, and receipt of emergency Government or public-safety notifications), the RBI also imposes a minimum 90 days default to trigger the locking. In our view, given the short tenure of funding, the 90-day default threshold, clearly a legacy of long-term lending practices, is quite impractical in the context. We present the highlights and our critical appraisal of the RBI’s proposals.

Introduction

Remote device locking is fast becoming the new device in recovery practices. With the ability to remotely restrict access to a borrower’s device, lenders are increasingly viewing the technology as a powerful tool to control defaults and strengthen recoveries.

In the past supervisory observations, RBI raised concerns regarding “full device locking” mechanisms adopted by certain lenders/Lending Service Provider (LSPs), noting that such measures may be disproportionate, coercive, and restrict access to essential device functionalities. The concerns appear to stem from borrower protection and fair practices considerations, particularly where borrowers are denied access to basic device features unrelated to the financed asset or outstanding dues.

At the same time, the Digital Personal Data Protection Act, 2023 (DPDP Act) introduces an additional layer of regulatory scrutiny like device-level restrictions and monitoring inherently involve the processing and control of personal data, making borrower consent, lawful processing, proportionality, purpose limitation, and data minimisation central to any remote locking framework.

From a data protection perspective, excessive control over a borrower’s device may raise serious concerns around privacy, digital autonomy, and the broader obligation to safeguard the rights of data principals.

The RBI has issued Revised Draft – RBI (Non-Banking Financial Companies – Responsible Business Conduct) Amendment Directions, 2026 which provides deployment of technology-based mechanism for recovery of loan duesalso known as “Remote Device Locking”, and proposes to restrict the use of device-locking mechanisms as a recovery tool, except where the loan was specifically granted for financing the concerned mobile device. 

The regulatory message is increasingly clear that technology-driven recovery mechanisms cannot come at the cost of privacy, fairness, or access to essential digital services.

Pre-requisites for Remote Device Locking


Device-locking mechanisms as a recovery tool is not permitted. However, in case the loan was specifically granted for financing the concerned mobile device, such measures may be adopted by the lenders subject to certain conditions:

  • Documentation and Communication: 
    • Clear and unambiguous disclosure which expressly authorises such restrictions in loan agreement. 
    • Further, trigger events for initiating recovery-related restrictions must be clearly defined and disclosed upfront to the borrower.
  • Prior Notice: A structured notice and cure mechanism must be implemented prior to imposing any restriction. 
    • A minimum 21-day notice period should be provided once the account reaches 60 DPD, giving the borrower a chance to cure the default. 
    • Following expiry of 21 days notice an additional 7-day cure period is given to the borrower before any restrictive measure is imposed.
  • DPD Status: Restrictions should be invoked only where the account remains in default beyond 90 DPD despite prior notices and cure opportunities, ensuring that such measures are used strictly as a last resort.
  • Access Control: Under no circumstances should restrictions impair access to essential device functionalities, including internet connectivity, incoming calls, emergency SOS services, or government/public safety notifications. 

Conclusion

Most device financing loans are short-tenure products, typically ranging from 3 to 12 months. If  lenders are required to wait until 60 DPD, followed by a 21-day notice period, an additional 7-day cure window, and eventual restriction only after 90 DPD, this may significantly reduce the commercial effectiveness of remote device locking as a recovery tool.

In short-tenure device financing loans, recovery measures are most effective during the early stages of delinquency, when the borrower continues to actively rely on the device. 

In practice, several lenders have historically adopted much earlier-stage device restrictions upon payment default. However, RBI appears to be consciously moving away from such practices due to concerns around coercive recovery measures, borrower protection, proportionality, and access to essential digital services.

Securitisation, Transfer and Distribution of Credit Risk- for Banks and NBFCs.

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We are pleased to announce the launch of our e-book — Securitisation, Transfer and Distribution of Credit Risk- for Banks and NBFCs. 

This book, spanning over 900+ pages,  provides a comprehensive analysis of the evolving regulatory and transactional landscape relating to credit risk transfer in India, with detailed commentary on:
• RBI regulations on securitisation
• Transfer of Loan Exposures or so-called direct assignments
• Co-lending arrangements
• Loan syndication arrangements
• SEBI regulations governing the issue and listing of securitised debt instruments

Designed specifically for banks, NBFCs, market participants, legal professionals and compliance teams, the publication offers practical insights into the regulatory framework governing structured finance and credit distribution transactions.

The Commentary is based on RBI’s November, 2025 version of consolidated Directions.

The book was launched during the 14th Securitisation Summit, and the e-book is available exclusively through the Premium Section of our website.

Kindly note that access to the book will be for a period of one year from the date of purchase of the book.

Read an excerpt from the book here.

Click here to purchase now directly, or

Register your interests here!

Table of Contents

About the book ……………………………………………………………………………………………………………………………. 1
Preface to Second Edition …………………………………………………………………………………………………………… 22
Chapter 1: Understanding the Basics of Securitisation & Structured Finance ……………………………………. 24
Chapter 2: Securitisation in India: Tracing the developments in the market ………………………………………. 51
Chapter 3: Asset Classes and Structures in India ……………………………………………………………………………. 67
Chapter 4: Law of assignment and true sale of receivables ……………………………………………………………… 83
Chapter 5: Commentary on the Directions on Securitisation of Standard Assets ………………………………. 107
Chapter 6: Listing Regulations On Securitised Debt Instruments & Security Receipts ……………………… 458
Chapter 7: Commentary on the Directions on Transfer of Loan Exposures ……………………………………… 659
Chapter 8: Co-lending Arrangements …………………………………………………………………………………………. 844
Chapter 9: Loan syndication, Consortium Lending, Participation Certificates and Balance Transfers …. 917
Chapter 10: Taxation aspects of Securitisation, Transfer of Loan Exposures and Co-lending ……………. 939
ABOUT THE CONTRIBUTORS ……………………………………………………………………………………………… 960

FAQs on Type-I NBFC Registration Exemption

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– Anita Baid, Dayita Kanodia & Chirag Agarwal | finserv@vinodkothari.com

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Repossessed, Revalued, Regulated: RBI’s framework for treatment of repossessed property

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-Anita Baid & Dayita Kanodia | finserv@vinodkothari.com

RBI, on May 5, 2026, came out with the draft directions on Specified Non-financial Assets (SNFA). These directions have been introduced with the intent of specifying the treatment of non-financial and non-banking assets, particularly immovable property, acquired by the lender in satisfaction of their claims on the borrower. 

It is relevant to note that a common framework has been introduced for banks and NBFC, which is in contradiction to the recent consolidation approach adopted by the Department of Regulations. This could possibly also create confusion as to the treatment of non-banking assets relevant for banks, being referred to under the common framework, to be also made applicable on NBFC. In case of banks, the Banking Regulations Act prohibits banks from holding such non-banking assets (NBAs) beyond a period of 7 years, except for property acquired for own use.

Key Highlights of the Proposal:

Our comments on the key proposals have been provided below:

  1. SNFA would include those immovable assets which are acquired by a RE in satisfaction or part satisfaction of its claims on the borrower along with the non-banking assets as per Section 9 of the BR Act. 

VKC comment: This would mean that movable property, like vehicles, equipment, is not being covered under the purview of these regulations. Further, the restriction on banks as provided under the BR Act to acquire any immovable assets other than assets put to its own use should not apply to NBFCs. 

  1. The SNFA can only be acquired by the RE concerned when
    1. The RE’s exposure to a borrower is classified as non-performing, and 
    2. Where other means of recovery have been explored and deemed unviable.

VKC comment: This could be practically challenging since in certain adverse situations (like fraud classification) the RE may not want to wait for the asset to turn into an NPA before repossession is done. However, practically, evaluation and classification as fraud would easily take 90 days.

Further, the fact that all other means of recovery has been explored and deemed unviable would be very subjective to establish. 

  1. Acquisition will result in proportionate extinguishment of the exposure in lieu of which the SNFA is being acquired. Any part extinguishment of claims by the RE concerned would be deemed as restructuring

VKC comment: It is understood that any compromise settlement of the dues would be done as per the extant regulations for banks and NBFCs (as the case may be) and the amount outstanding post such settlement shall be considered to determine the remaining claims, if any.

  1. Upon acquisition, the SNFA shall be recorded in the balance sheet at the lower of-
    1. The NBV of the extinguished exposure or 
    2. The distress sale value of the SNFA arrived at by at least two independent external valuers.

At each subsequent reporting date, the SNFA shall be carried on the balance sheet at the lower of the last available distress sale value, or the revised NBV (value of extinguished exposure, net of the notional provisions applicable had the exposure continued on the books of the RE).

VKC Comment: The accounting treatment of the SNFA should have been governed as per the provisions of the accounting standards (para 3.2.23 of Ind AS 109). There could be a possible conflict since the accounting standards require the asset to be recognised on fair value. 

  1. Post-acquisition, the SNFA will be revalued at least once every two years on a distress sale basis. The reasons for failure to dispose of the asset earlier shall also be recorded. Valuation gains should be ignored and any diminution in value should be recognised in profit and loss statement immediately.
  1. Any accrued interest or charges with respect to the exposure shall not be recognised till the SNFA is actually disposed off and such interest or charges are received by the RE.

VKC Comment: This is consistent with the IRAC provisions which requires the RE to shift from accrual accounting to cash basis accounting upon the asset turning into an NPA. 

  1. Any expense/income incurred for the SNFA should be recognised in the P/L account for the year in which the same is incurred/earned.
  1. Disposal of such SNFA shall be by way of a public auction following the SARFAESI procedures

VKC Comment: SARFAESI is applicable to NBFCs having an asset size of more than 100 crore and where the outstanding amount is a minimum of ₹20 L. Accordingly, in some cases, SARFAESI may not be applicable at all. In such cases, following SARFAESI procedures should ideally not be made mandatory. 

  1. SNFA cannot be sold back to the borrower or its RPs (as defined under the IBC, 2016)

VKC Comments: Even under IBC, 29A bars the borrower and its connected persons from bidding on the repossessed assets (except for certain exemptions in case of MSME borrowers). 

  1. In case of failure to dispose the SNFA within earlier of:
    1. 7 years from the date of acquisition or 
    2. The carrying value becoming zero

the asset shall be deemed to have been employed for its own use by the RE and will be recorded as a fixed asset.

VKC Comments: It seems unclear if the RE concerned can put the assets to its own use immediately on the acquisition of such assets. 

  1. Specific disclosure to be made as a part of the financial statements as per the format prescribed by RBI. 

Also, read our article,