Lending to related parties: RBI plans to introduce scale-based materiality thresholds for lenders

FILE PHOTO: A woman walks past the Reserve Bank of India (RBI) logo inside its headquarters in Mumbai, India, April 6, 2023. REUTERS/Francis Mascarenhas/File Photo
| Photo Credit: FRANCIS MASCARENHAS

The Reserve Bank of India intends to implement scale-based materiality thresholds for lenders, requiring Board or Committee approval for loans to related parties that exceed specified limits. This measure is included in a draft regulatory framework governing lending to connected entities by regulated institutions (REs).

The proposed thresholds address concerns that loans to entities linked through ownership stakes or influence could undermine the interests of lenders and stakeholders. Personal loans to directors and other related-party transactions would be subject to these materiality limits under the new guidelines.

For scheduled commercial banks, small finance banks, regional rural banks, and all India financial institutions, lending ceilings will correlate with asset size:

• Below ₹1 lakh crore assets: ₹5 crore threshold
• ₹1-10 lakh crore assets: ₹10 crore threshold
• Above ₹10 lakh crore assets: ₹50 crore threshold

Non-banking financial companies (NBFCs) will follow category-based limits:

• Base layer: ₹1 crore
• Middle layer: ₹5 crore
• Upper/top layers: ₹10 crore

Urban co-operative banks will adhere to tiered ceilings:

• Tier 1: ₹1 crore
• Tier 2: ₹2 crore
• Tier 3: ₹5 crore
• Tier 4: ₹10 crore

Local area banks face a strict ₹1 crore lending cap to related parties. The framework notably excludes Independent Directors from “related persons” classification and mandates enhanced disclosures and reporting mechanisms for regulated entities.

Stakeholder feedback on the draft guidelines is invited until October 31, 2025.

Published on October 3, 2025