RBI Tightens Related-Party Lending Norms with Transaction-Level Thresholds

The Reserve Bank of India (RBI) has strengthened oversight on lending to related parties by introducing transaction-level materiality thresholds, requiring higher-level approvals for large exposures. 

Key Development 

Under the Reserve Bank of India (Commercial Banks: Credit Risk Management) Amendment Directions, 2026, loans to related parties where not explicitly barred under existing laws will now be governed by balance sheet-linked thresholds.  

Any single transaction exceeding the prescribed limit will need approval from a bank’s board or a designated Committee on Lending to Related Parties. 

For banks with total assets above ₹10 trillion, the materiality threshold has been fixed at ₹25 crore per transaction. Banks with asset sizes between ₹1 trillion and ₹10 trillion will face a ceiling of ₹10 crore, while lenders with assets below ₹1 trillion will be subject to a lower cap of ₹5 crore. The asset size will be calculated using the bank’s most recently audited balance sheet. 

Exemptions and Internal Policy Flexibility 

The RBI clarified that certain exposures are excluded from these thresholds, including credit facilities fully backed by cash or liquid securities subject to loan-to-value and valuation norms and interbank loans.  

While banks are permitted to set differentiated internal thresholds for various categories of related-party lending, any exposure crossing the RBI-prescribed ceiling must receive board-level or committee approval. 

Read More: From Digital Banking to Governance: RBI Sets 2026 Timelines for Key Banking Compliance Changes! 

Conclusion 

The revised framework enhances governance and transparency in related-party lending by linking approval requirements to transaction size and bank scale. By tightening oversight while allowing operational flexibility, the RBI aims to curb concentration risks and reinforce prudent credit risk management across the banking system. 

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