RBI plans stricter rules for banks, NBFCs on related-party lending

Mumbai, Oct 3, 2025

RBI proposes thresholds requiring board approval for related-party lending by regulated entities, with exemptions and stronger reporting and disclosure norms

The Reserve Bank of India (RBI) plans to introduce scale-based thresholds beyond which regulated entities (REs) such as banks and non-banking financial companies (NBFCs) will need board approval for lending to related parties.

RBI has also proposed principle-based exemptions for certain types of loans from restrictions prescribed under the Banking Regulation (BR) Act, 1949, on banks granting loans and advances. Section 20(1)(b) of the Act bars banks from granting any loan or advance to, or on behalf of, any of their directors. Banks also cannot extend commitments for loans and advances on behalf of a firm in which any of their directors is interested as a partner, manager, employee or guarantor.

According to the proposed norms, independent directors of other banks would be excluded from the scope of related persons of an RE for the purpose of these directions.

The draft framework also entails suitable supervisory reporting and disclosure requirements by REs on transactions with related parties, the RBI said.

“Lending to counterparties who are related or connected to the lending bank through ownership, or the ability to control and influence decisions, may prove detrimental to the interests of the bank and stakeholders,” the RBI said. It added that globally, there are regulations on such related-party lending and transactions, which might create conflicts of interest or moral hazard for banks.

[The Business Standard]