The Reserve Bank of India (RBI) on November 28, 2025, issued the Reserve Bank of India (Small Finance Banks – Credit Risk Management) Directions, 2025 for public comments. The aims to strengthen the prudential framework for managing credit risk in Small Finance Banks (SFBs), covering evaluation, exposure limits, statutory and regulatory restrictions, country risk management, valuation practices, and monitoring of unhedged foreign currency exposure (UFCE). These Directions are issued under Sections 21 and 35A of the Banking Regulation Act, 1949, to ensure robust governance and safeguard systemic stability.
The mandates SFBs to adopt a comprehensive, Board-approved credit risk management policy encompassing areas like country risk, unhedged foreign currency exposure, valuation of properties, and opening of current and cash credit/over accounts. Banks must conduct independent credit appraisals, carry out sensitivity analysis for large or infrastructure projects, verify the quality of promoter equity, and fix prudential exposure limits for unsecured consumer credit. It also emphasizes obtaining credit information from registered Credit Information Companies (CICs) for informed lending decisions.
Further, the Directions require banks to establish detailed procedures for country risk management—covering risk identification, assessment, internal country ratings, and stress testing. SFBs must review country exposure quarterly and report significant deteriorations to their Boards promptly. The framework also stresses the importance of internal controls, periodic policy reviews, and transparent monitoring systems to ensure integrity in credit risk oversight and regulatory compliance.
These Directions shall come into force with immediate effect.
[Notification No. RBI/DOR/2025-26/188 DOR.CRE.REC.107/07-02-002/2025-26]
