The Reserve Bank of India (RBI) on December 11, 2025, issued amendment directions to the RBI (Local Area Banks – Credit Risk Management) Directions, 2025, originally notified on November 28, 2025. These amendments add new definitions for cash credit (CC) and current accounts, and introduce an entirely new Chapter VIIA governing the maintenance and monitoring of CC, current, and overdraft (OD) accounts by Local Area Banks (LABs).
The new framework addresses risks arising from the use of these accounts as transaction accounts and strengthens credit discipline. For borrowers with banking system exposure below ₹10 crore, current and OD accounts may be freely maintained. For borrowers with exposure of ₹10 crore or more, strict eligibility criteria apply—based on a bank’s minimum share in total exposure or fund-based exposure. Banks not meeting these criteria may operate only collection accounts, with funds required to be transferred to a designated account within two working days. Exemptions apply for FEMA-related accounts, statutory accounts, and accounts of regulated entities.
The amendments also set out compliance monitoring obligations, including half-yearly reviews, mandatory customer notification when eligibility ceases, CBS flagging of relevant accounts, and strict prohibitions against unlicensed deposit-taking or third-party transaction routing. Preferential routing of term-loan disbursals directly to beneficiaries is also encouraged. These amendments take effect on April 1, 2026, with an option for earlier implementation.
[Notification No. RBI/2025-26/144; DOR.CRE.REC.350/07-02-003/2025-26]
