The Reserve Bank of India (RBI) has asked scheduled commercial banks (SCBs) to draw up a Board-approved credit risk management policy, covering aspects such as lending to related parties, country risk management, unhedged foreign currency exposures, among others.
With respect to related party lending, Banks have to specify aggregate limits for loans within materiality thresholds, put in place a ‘Committee on lending to related parties’ and have a comprehensive whistleblowing mechanism, among others.
As per the Reserve Bank of India (Commercial Banks – Credit Risk Management) – Amendment Directions, 2026, loans to related parties, which are permissible (including credit facilities fully secured by cash or liquid securities and in accordance to prescribed LTV/loan-to-value and valuation norms for such securities) will not be higher than the materiality threshold ceilings.
Depending on the assets size, a materiality threshold ceiling (MTC) has been prescribed. For a Bank with an asset size of less than ₹1 lakh crore, the MTC is ₹5 crore; for a Bank with asset size greater than/equal to ₹1 lakh crore and up to ₹10 lakh crore, the MTC is ₹10 crore; and for a Bank with asset size greater than ₹10 lakh crore, the MTC is ₹25 crore.
All loans above the prescribed materiality threshold have to be sanctioned either by the Board or by the ‘Committee on Lending to Related Parties’ of the bank. As regards loans below the materiality threshold, the same can be sanctioned by appropriate authority in terms of powers delegated to them.
Recuse from deliberations
Directors, Key Managerial Personnel (KMP), or ‘specified employees’ have to recuse themselves from deliberations and decision on loan proposals, or contracts and arrangements, involving themselves or their related parties, per the directions.
Such recusal will also extend to deliberations and decisions relating to any subsequent material changes to the terms of such loans, including one-time settlements, write-offs, waivers, enforcement of security, implementation of resolution plans, etc.
RBI said a bank has to put in place a suitable mechanism for maintaining and periodically updating the list of all the related persons, and the related parties thereof, as well as the loans sanctioned by the bank to such related persons and related parties.
Whistleblowing mechanism
The policy will, as a part of the whistleblowing mechanism, encourage employees to communicate confidentially and without the risk of reprisal, legitimate concerns, if any, about irregular, unethical or questionable loans to related parties; and eliminate quid pro quo arrangements, if any.
The central bank said these amendments, which also cover aspects relating to valuation of properties, including empanelment of valuers, and opening of current accounts and Cash Credit / Over Draft accounts, will come into force from April 1, 2026. Banks may however decide to implement the amendments in entirety from an earlier date.
Published on January 5, 2026
