Page 15 - Banking Finance February 2026

RBI CORNER

so far has remained strong, supported ened across industry, services and per- in the middle layer cannot levy prepay-
by rising non-bank intermediation, ac- sonal loans, with loans against gold ment charges on business loans to in-
cording to the Reserve Bank of India's jewellery recording triple-digit growth dividuals and MSEs with sanctioned
latest monthly bulletin. Up to Novem- amid rising gold prices. limits up to Rs. 50 lakh. The rules cover
ber 28, total funding to the commer- loans with or without co-obligants.
cial sector stood at Rs. 22.56 lakh crore, RBI scraps prepayment The central bank said inconsistent
higher by Rs. 4.22 lakh crore com- practices across lenders had led to a
pared with the same period last year. charges on floating-rate lack of transparency and unfair treat-
Bank credit, measured as non-food loans from January 2026 ment of borrowers, particularly small
credit, contributed Rs. 12.40 lakh The Reserve Bank of India has barred enterprises. The new framework seeks
crore, marking an increase of Rs. 1.91 banks and non-banking finance compa- to ensure uniformity and clarity in the
lakh crore year-on-year. Funding from nies (NBFCs) from levying prepayment levy of prepayment charges across
non-bank sources, both domestic and charges on floating-rate loans, effec- regulated entities. The directions ap-
foreign, was even higher at Rs. 10.16 tive January 1, 2026. The move applies ply to all commercial banks except
lakh crore, up by Rs. 2.30 lakh crore. to loans granted to individuals for non- payments banks, co-operative banks,
RBI officials noted a significant rise in business purposes and to individuals NBFCs and all-India financial institu-
corporate bond issuances and and micro and small enterprises tions, subject to specified conditions
foreign direct investment during the (MSEs) for business purposes, address- based on entity type and loan size.
year so far. ing long-standing customer grievances
The share of non-food bank credit in over restrictive loan clauses. RBI directs banks to frame
total funding declined to 55 per cent Under the RBI's directions, small fi- board-approved credit risk
from 57 per cent a year ago, while the nance banks, regional rural banks, tier-
share of non-bank sources rose to 45 3 urban co-operative banks, state and management policy
per cent. Bank credit growth strength- central co-operative banks, and NBFCs The Reserve Bank of India (RBI) has
directed scheduled commercial banks
KYC lapses and update backlog weaken banks' fraud to put in place a comprehensive,

defences: RBI board-approved credit risk manage-
ment policy, strengthening governance
The Reserve Bank of India (RBI) has flagged growing lapses in know-your- around lending practices and risk over-
customer (KYC) compliance as a key vulnerability in banks' defences against sight. The policy must cover key areas
fraud and financial exclusion, particularly in rural and semi-urban areas. The such as lending to related parties,
central bank has asked lenders to urgently clear the backlog in periodic KYC
country risk management and
updates and warned against the routine or mechanical rejection of KYC and unhedged foreign currency exposures,
account-related applications. among others.
In its latest assessment, the RBI said banks should organise special camps
Under the amended RBI (Commercial
and launch intensive campaigns to accelerate KYC updates, especially at Banks - Credit Risk Management) Direc-
smaller branches. It cautioned that onboarding and KYC-updation requests
tions, 2026, banks are required to de-
must not be rejected without due consideration and that reasons for rejec-
fine materiality thresholds for related
tion should be properly documented. The regulator noted that it had itself
party lending and prescribe aggregate
supported a nationwide re-KYC drive at the gram panchayat level between
exposure limits. All loans above the pre-
July and October 2025.
scribed materiality threshold must be
The RBI said weak KYC controls not only raise fraud risks but also undermine approved either by the bank's board or
access to formal finance. It also flagged mis-selling as a persistent conduct a dedicated Committee on Lending to
risk and said fresh guidelines would be issued. Highlighting the growing threat Related Parties. The framework also
from cyber and operational incidents, the RBI said it is working with other mandates the creation of such a com-
authorities to curb digital fraud, supported by technology initiatives such as mittee and the introduction of a robust
MuleHunter.ai and an AI-driven digital payments intelligence platform. whistleblowing mechanism. T

14 | 2026 | FEBRUARY | BANKING FINANCE