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

RBI updates RBI (Small Finance Banks - Undertaking of Financial Services) Directions, 2025

05-Dec-2025 | RBI/DOR/2025-26/179 DOR.AUT.REC.No.98/24.01.041/2025-26

RBI has updated RBI (Small Finance Banks - Undertaking of Financial Services) Directions, 2025 Key Highlights: 1. Updated key definitions such as Agency Business and Referral Services. 2. SFBs may conduct activities permitted under Section 5(b) and 6(1) of the Banking Regulation Act departmentally but must seek RBI's prior approval before starting any new business not already allowed. 3. SFBs cannot create subsidiaries to conduct non-banking financial services. Certain specialised businesses (mutual funds, insurance, pension funds, PMS, broking, investment advisory) must only be carried out through a group entity under an NOFHC, not by the bank itself. 4. New investment rules are introduced - Investment in any single entity capped at 10% of paid-up capital + reserves; overall cap of 20% for all equity investments. 5. Additional restrictions added - a. SFBs cannot sponsor more than one ARC and can hold less than 20% in any ARC. b. Contribution to Category I/II AIFs capped at 10% of scheme corpus; no investment allowed in Category III AIFs. 6. Compliance and reporting - a. Banks must assess additional capital needs under ICAAP for AIF-related risks. b. Any breach must be reported on PRAVAAH portal within 15 days. c. Non-compliant banks must submit an action plan by March 31, 2026, and achieve full compliance by March 31, 2028. For more information, please refer to the attached document.

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