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Corporate Laws Central Ministry of Finance Reserve Bank of India Act, 1934

RBI issues RBI (Local Area Banks - Credit Risk Management) Amendment Directions, 2025

11-Dec-2025 | RBI/2025-26/144 DOR.CRE.REC.350/07-02-003/2025-26

RBI has issued RBI (Local Area Banks - Credit Risk Management) Amendment Directions, 2025 effective from 01st April 2026 or on an earlier date as decided by banks.

Key Highlights:
1. This Amendment Direction replaces the earlier chapter on current, cash credit (CC), and overdraft (OD) accounts.
2. A new Chapter introduces a structured framework to strengthen credit discipline and monitoring of CC, current, and OD accounts used as transaction accounts.
3. Cash Credit (CC) accounts may be provided freely as working capital facilities, without restrictions under the new framework.
4. For borrowers where total banking system exposure is below Rs.10 crores, banks may open and maintain current or OD accounts without restrictions.
5. For borrowers with Rs.10 crores or more exposure, only banks meeting specified minimum exposure thresholds (generally 10%) may maintain current or OD accounts; others may maintain only collection accounts.
6. Collection accounts can receive inflows, but funds must be transferred to a designated account within two working days, with limited exceptions.
7. Certain accounts are exempted (e.g., FEMA-related accounts, statutory or regulator-mandated accounts, and regulated entities' operational accounts), subject to strict usage controls.
8. Banks must ensure strong compliance and monitoring, flag such accounts in their systems and prevent misuse (such as pass-through or unauthorised activities).


For more information, please refer to the attached document.

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