The Reserve Bank of India (RBI) on 5 December 2025 issued amendment directions governing the financial services that banks and their group entities may undertake, with the changes to the rules for commercial banks taking effect the same day. The RBI released five sets of amendment directions, covering commercial banks, small finance banks, payments banks, non-banking financial companies (NBFCs) and non-operative financial holding companies, after examining feedback on a draft circular issued on 4 October 2024.
The RBI said the amendments address the ringfencing of banks' core business from other risk-bearing non-core businesses while establishing a level playing field for regulated entities.
ONE ENTITY PER BUSINESS, WITH EXCEPTIONS
Under the amended directions for commercial banks, any form of business should, as a principle, be undertaken by one entity in a bank group. A bank may, however, undertake the same form of business through more than one group entity if it has a proper rationale, such as business segmentation or specialisation, that is recorded and approved by its Board.
Where lending is also carried out through a group entity, that NBFC or housing finance company must follow the regulations applicable to Upper Layer NBFCs, other than the listing requirement. Certain restrictions that apply to the bank, including limits on loans against shares, IPO financing and ESOP funding, and stipulations on financing promoters' contribution and land acquisition, will apply to fresh, renewed and additional loans sanctioned by NBFC group entities.
Mutual fund, insurance, pension fund management, investment advisory, portfolio management and broking businesses may be carried out only through a group entity, not departmentally.
COMPLIANCE TIMELINE
A bank that does not conform with the business conditions may not undertake new business in the relevant segment from 1 April 2026 and must submit a compliance status by 31 March 2026, although existing facilities may be serviced until maturity. Banks that do not conform with the revised prudential limits on investments in group and other entities must submit an action plan by 31 March 2026 and comply no later than 31 March 2028.