The Reserve Bank of India (RBI) has issued Amendment Directions, 2026 for Urban Co-operative Banks (UCBs) and Rural Co-operative Banks (RCBs) with regard to credit risk management and lending to related parties. The directions were notified on January 5, 2026 and will come into force from April 1, 2026.
Under the amended framework, RBI has expanded definitions of directors, key managerial personnel, specified employees, related persons and related parties. Co-operative banks have been directed to incorporate specific provisions on related party lending in their Board-approved credit risk management policies.
The directions prohibit lending to relatives of directors and to firms or companies in which such relatives have interest, except for credit facilities fully secured by government securities, life insurance policies or fixed deposits. Materiality thresholds have been prescribed for related party loans and exposures above these limits will require approval of the Board.
RBI has also laid down requirements relating to recusal of interested parties, periodic monitoring through audits and reporting of deviations. Existing non-compliant related party loans may continue till maturity but shall not be renewed or enhanced unless compliant with the amended directions.
