The Reserve Bank of India (RBI) on November 28, 2025, released the Reserve Bank of India (Small Finance Banks – Transfer and Distribution of Credit Risk) Directions, 2025, for public comments. The aims to establish a comprehensive and self-contained regulatory framework governing various avenues for credit risk transfer and distribution by Small Finance Banks (SFBs). It consolidates norms related to loan transfers, stressed asset sales, inter-bank participations, consortium arrangements, and take-out financing to enhance liquidity management, promote risk diversification, and ensure market-based credit risk distribution within prudential limits.
The Directions are applicable to all SFBs acting as transferors or transferees in loan transfers, and prescribe detailed conditions on minimum holding period (MHP), credit enhancement, and economic interest to ensure true sale and risk transfer integrity. SFBs may purchase only standard assets from banks and NBFCs for meeting Priority Sector Lending (PSL) sub-targets and are barred from acquiring non-performing assets. The framework defines clear operational procedures for transfers through assignment, novation, and participation, requiring legal ownership transfer in non-participation transactions and explicit contractual arrangements in loan participations.
Further, the stipulates prudential requirements for permissible entities, exposure treatment, capital maintenance, and verification responsibilities of transferors, while prohibiting transactions involving disqualified or related parties of defaulting borrowers. By harmonising existing guidelines on credit risk transfer, the Directions seek to foster transparency, governance discipline, and market efficiency in SFB lending and investment operations.
These Directions shall come into force with immediate effect.
[Notification No. RBI/DOR/2025-26/190 DOR.STR.REC.109/21.04.048/2025-26]
