The Reserve Bank of India (RBI) on July 31, 2026, issued the Reserve Bank of India (Small Finance Banks – Fraud Risk Management) Directions, 2026.
The following has been stated: -
•The Reserve Bank of India (Small Finance Banks - Fraud Risk Management) Directions, 2026 provide a comprehensive framework for Small Finance Banks (SFBs) to prevent, detect, and report fraud incidents.
•It mandates that SFBs establish a Board-approved Fraud Risk Management Policy, incorporate a dedicated Early Warning Signal (EWS) system, and strictly follow the principles of natural justice by issuing show-cause notices before declaring an account as fraud.
•Additionally, the directions require SFBs to set up a "Special Committee of the Board for Monitoring and Follow-up of cases of Frauds" (SCBMF) and establish a Data Analytics and Market Intelligence Unit to track potential irregularities.
•Accounts identified with suspicious activity must be red-flagged and reported to RBI platforms within seven days, with the full investigation completed within 180 days.
•Finally, entities classified as fraudulent face a five-year ban from raising funds or obtaining new credit facilities, while mandatory reporting guidelines are laid out for Law Enforcement Agencies (LEAs) based on the fraud amount.
These Directions shall come into effect immediately upon issuance.
The detailed directions are given in the document below.
[Notification No.: RBI/DoS/2026-27/421 DoS.CO.FMG.15/23.04.001/2026-27]
