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In-depth analysis of RBI Circulars for July 2026
RBI Circulars July 2025
This lesson covers the key regulatory updates and circulars issued by the Reserve Bank of India in July 2025.
Reserve Bank of India (Pre-payment Charges on Loans) Directions, 2025
This circular standardizes the rules for charging penalties when a borrower pays off a loan early (pre-payment). The goal is to protect Micro and Small Enterprises (MSEs) and individuals from unfair charges.
1. Applicability & Effective Date
- Effective Date: Applies to all loans sanctioned or renewed on or after January 1, 2026
- Who must follow this? All Commercial Banks (except Payments Banks), Co-operative Banks, NBFCs, and All India Financial Institutions (AIFIs)
2. The New Rules for Floating Rate Loans
The circular divides borrowers and lenders into specific categories to decide if pre-payment charges can be levied.
A. Individual Loans (Non-Business)
- Rule: For loans granted to individuals for purposes other than business (e.g., Home Loan, Personal Loan), NO Pre-payment Charges can be levied
- Note: This applies regardless of who the lender is
B. Business Loans (Individuals & MSEs)
For loans given to individuals for business purposes or to MSEs, the rule depends on the Type of Lender:
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RBI Circulars July 2025
This lesson covers the key regulatory updates and circulars issued by the Reserve Bank of India in July 2025.
Reserve Bank of India (Pre-payment Charges on Loans) Directions, 2025
This circular standardizes the rules for charging penalties when a borrower pays off a loan early (pre-payment). The goal is to protect Micro and Small Enterprises (MSEs) and individuals from unfair charges.
1. Applicability & Effective Date
- Effective Date: Applies to all loans sanctioned or renewed on or after January 1, 2026
- Who must follow this? All Commercial Banks (except Payments Banks), Co-operative Banks, NBFCs, and All India Financial Institutions (AIFIs)
2. The New Rules for Floating Rate Loans
The circular divides borrowers and lenders into specific categories to decide if pre-payment charges can be levied.
A. Individual Loans (Non-Business)
- Rule: For loans granted to individuals for purposes other than business (e.g., Home Loan, Personal Loan), NO Pre-payment Charges can be levied
- Note: This applies regardless of who the lender is
B. Business Loans (Individuals & MSEs)
For loans given to individuals for business purposes or to MSEs, the rule depends on the Type of Lender:
| Lender Category | Rule for Pre-payment Charges |
|---|---|
| Category 1: Commercial Banks (excl. SFB/RRB/LAB), Tier 4 UCBs, NBFC-UL (Upper Layer), AIFIs | NO Charges allowed on any amount |
| Category 2: Small Finance Banks (SFBs), RRBs, Tier 3 UCBs, State/Central Co-op Banks, NBFC-ML (Middle Layer) | NO Charges for loans up to ₹50 Lakh |
Crucial Conditions:
- These rules apply irrespective of the source of funds used for repayment (borrower's own money or taken from another bank)
- There can be NO minimum lock-in period (borrowers can repay anytime)
3. Calculation of Charges (Where applicable)
For cases not covered above (e.g., Fixed Rate loans or loans >₹50L from smaller banks), if charges are allowed:
- Term Loans: Charges must be based on the Amount being Prepaid (not the total loan amount)
- CC / Overdraft: Charges must based on the Sanctioned Limit
- Exemption: No charges if the borrower informs the bank before the deadline that they won't renew the facility, and closes it on the due date
4. Disclosure & Fairness
- Transparency: Pre-payment charges must be clearly disclosed in the Sanction Letter, Loan Agreement, and Key Facts Statement (KFS)
- No Retrospective Fees: Banks cannot suddenly charge fees that were previously waived off at the time of pre-payment
- Bank-Initiated Pre-payment: If the Bank asks for early repayment, they cannot charge a penalty
Summary Cheat Sheet for Exams
| Scenario | Rule |
|---|---|
| Individual (Non-Business) | Zero Charges |
| MSE / Individual (Business) - Big Banks | Zero Charges |
| MSE / Individual (Business) - Small Banks (SFB, RRB, etc.) | Zero Charges up to ₹50 Lakh |
| Lock-in Period | Not Allowed |
| Source of Funds | Irrelevant (Can be own or refinanced) |
| Term Loan Charge Basis | On Prepaid Amount |
Practice Question
Q. As per the RBI Directions (2025), Small Finance Banks and Regional Rural Banks cannot levy pre-payment charges on floating rate loans sanctioned to MSEs for business purposes up to a limit of:
A) ₹10 Lakh
B) ₹20 Lakh
C) ₹25 Lakh
D) ₹50 Lakh
E) ₹1 Crore
Answer: D) ₹50 Lakh
Basel III Capital Regulations – External Credit Assessment Institutions (ECAIs) – CareEdge Global IFSC Limited
This update introduces a new Credit Rating Agency whose ratings Indian banks can now use for capital adequacy calculations.
1. The New Addition (CareEdge)
- Previous Rule: Banks were only allowed to use ratings from three international agencies for foreign claims: Fitch, Moody's, and Standard & Poor's (S&P)
- New Decision: The RBI has decided to permit banks to also use the ratings of M/s CareEdge Global IFSC Limited
2. Scope of Usage (Crucial Limitation)
Banks cannot use CareEdge ratings for everything. They are permitted only for:
- Claims on: Non-resident corporates
- Originating at: International Financial Services Centre (IFSC)
3. Risk Weight Mapping
When banks lend to these corporates based on CareEdge ratings, they must assign "Risk Weights" to calculate how much capital to set aside. The mapping is as follows:
| Rating Category | Risk Weight (%) |
|---|---|
| AAA | 20% |
| AA | 30% |
| A | 50% |
| BBB | 100% |
| BB & below | 150% |
4. Applicability
- Applicable to: All Scheduled Commercial Banks (including Small Finance Banks)
- Excluded: Local Area Banks (LABs), Payments Banks (PBs), and Regional Rural Banks (RRBs)
Summary Cheat Sheet for Exams
| Feature | Details |
|---|---|
| New Eligible Agency | CareEdge Global IFSC Limited |
| Allowed for | Non-resident corporates at IFSC |
| Risk Weight (AAA) | 20% |
| Risk Weight (BBB) | 100% |
| Risk Weight (BB & below) | 150% |
Practice Question
Q. As per the recent RBI circular on Basel III Capital Regulations, banks are permitted to use the ratings of "CareEdge Global IFSC Limited" for risk weighting their claims on which specific category of borrowers?
A) All domestic corporates
B) All international sovereigns
C) Non-resident corporates originating at IFSC
D) Public Sector Undertakings (PSUs)
E) Micro, Small and Medium Enterprises (MSMEs)
Answer: C) Non-resident corporates originating at IFSC
Lending Against Gold and Silver Collateral - Voluntary Pledge of Gold and Silver as Collateral for Agriculture and MSME Loans
This circular addresses a specific confusion: If the RBI says "No Collateral" for small loans, can a bank accept Gold if the borrower offers it willingly?
1. The "No Collateral" Rules (Background)
Before understanding the clarification, you must remember the existing Collateral-Free Limits:
- Agriculture Loans: Banks must waive collateral security and margin requirements for loans up to ₹2 Lakh per borrower (raised from ₹1.6 Lakh)
- MSE Sector Loans: Banks are mandated not to accept collateral for loans up to ₹10 Lakh
- Note: This can be increased to ₹25 Lakh for units with a good track record (with approval)
- PMEGP Loans: Collateral-free up to ₹10 Lakh
2. The Clarification: Voluntary Pledge
- The Issue: Since banks are mandated not to take collateral for these small amounts, they were hesitant to accept Gold/Silver even if the borrower wanted to provide it (perhaps to get a lower interest rate or faster processing)
- The Decision: The RBI has clarified that if a borrower provides Gold or Silver as collateral Voluntarily, it will NOT be considered a violation of the collateral-free guidelines
- Key Takeaway: Banks can accept gold/silver for loans under ₹2 Lakh (Agri) or ₹10 Lakh (MSE) only if the borrower offers it voluntarily
Summary Cheat Sheet for Exams
| Sector | Collateral-Free Limit |
|---|---|
| Agriculture | ₹2 Lakh |
| MSE (Mandatory) | ₹10 Lakh |
| MSE (With Track Record) | ₹25 Lakh |
| Voluntary Gold Pledge | Allowed (Not a violation) |
Practice Question
Q. As per the recent RBI clarification, if an MSME borrower voluntarily offers gold as collateral for a loan of ₹8 Lakh (which is below the mandatory collateral-free limit), how should the bank treat this?
A) The bank must reject the collateral as it violates RBI norms
B) The bank can accept it, but must report it as an exception
C) The bank can accept it, and it will not be construed as a violation of guidelines
D) The bank can only accept it if the loan is above ₹10 Lakh
E) The bank must obtain special approval from the RBI
Answer: C) The bank can accept it, and it will not be construed as a violation of guidelines
Some Small Updates
NSDL Payments Bank Limited
"NSDL Payments Bank Limited" has been included in the Second Schedule of the Reserve Bank of India Act, 1934.
Lead Bank Responsibility (Arunachal Pradesh)
- Context: The Government of Arunachal Pradesh has formed two new districts
- The Update: Under the Lead Bank Scheme, the RBI has assigned the State Bank of India (SBI) as the designated Lead Bank for both new districts
- District Codes: Unique "District Working Codes" have been assigned for reporting purposes
| Newly Created District | Lead Bank Responsibility | District Working Code |
|---|---|---|
| Keyi Panyor | State Bank of India | 02S |
| Bichom | State Bank of India | 02T |
(Note for Exams: The codes end in 'S' and 'T' respectively. Remember "ST" for the sequence)
Inclusion in the Second Schedule (Scheduled Banks)
- The Update: Two co-operative banks have been officially included in the Second Schedule of the Reserve Bank of India Act, 1934
- Significance: This grants them the status of "Scheduled Bank", allowing them access to RBI liquidity windows (LAF) and requiring them to maintain CRR/SLR as per scheduled bank norms
The Two Banks are:
- Deogiri Nagari Sahakari Bank Ltd. (Chhatrapati Sambhajinagar)
- Ahmednagar Merchant's Co-op. Bank Ltd. (Ahmednagar)
Summary Cheat Sheet for Exams
| Feature | Details |
|---|---|
| New Districts State | Arunachal Pradesh |
| Lead Bank Assigned | SBI (for both Keyi Panyor & Bichom) |
| Keyi Panyor Code | 02S |
| Bichom Code | 02T |
| New Scheduled Bank 1 | Deogiri Nagari Sahakari Bank |
| New Scheduled Bank 2 | Ahmednagar Merchant's Co-op Bank |
Practice Question
Q. Which of the following banks has recently been included in the Second Schedule of the RBI Act, 1934?
A) Paytm Payments Bank
B) Deogiri Nagari Sahakari Bank Ltd.
C) Airtel Payments Bank
D) Jio Payments Bank
E) Fino Payments Bank
Answer: B) Deogiri Nagari Sahakari Bank Ltd.
Reserve Bank of India (Investment in AIF) Directions, 2025
This circular regulates how Banks and NBFCs can invest in Alternative Investment Funds (AIFs). The main goal is to prevent "Evergreening of loans (i.e., banks investing in an AIF, which then lends money back to the bank's defaulting borrower to pay off the old loan).
1. Applicability & Effective Date
- Effective Date: January 1, 2026 (or earlier if the entity decides)
- Applicable Entities (REs):
- Commercial Banks (incl. SFBs, RRBs, LABs)
- Co-operative Banks (Urban, State, Central)
- All-India Financial Institutions (AIFIs)
- NBFCs (including HFCs)
2. Investment Limits (The "10/20" Rule)
To prevent banks from having too much control or exposure to a single AIF, strict limits are set:
- Individual Limit: No single Regulated Entity (RE) can contribute more than 10% of the corpus of an AIF Scheme
- Aggregate Limit: All REs together cannot contribute more than 20% of the corpus of that scheme
3. The "Evergreening" Check (Provisioning Norms)
This is the most critical part for exams. It stops banks from routing money to their bad borrowers via AIFs.
- The Scenario: An RE invests in an AIF, and that AIF invests in a company that is already a borrower ("Debtor Company") of that RE
- The Trigger: If the RE contributes more than 5% of the AIF's corpus
- The Consequence: The RE must make 100% Provisioning on its proportionate investment in that debtor company made through the AIF
- Cap: The provision amount is capped at the RE's direct exposure to the debtor company
- Definition of "Debtor Company": Any company where the RE has (or had in the last 12 months) a loan or investment exposure (excluding equity)
4. Capital Treatment for Subordinated Units
- If an RE invests in "Subordinated Units" (units that absorb losses first, acting like a buffer for other investors), it is considered very risky
- Rule: The entire investment in subordinated units must be Deducted from Capital Funds (Tier-1 and Tier-2)
However, for Subordinated Units, the RBI says: "This investment is so risky, you must assume it is already lost." Instead of treating it as an asset, the bank must subtract that amount directly from its own Regulatory Capital (Tier-1 and Tier-2).
Summary Cheat Sheet for Exams
| Feature | Rule / Limit |
|---|---|
| Effective Date | Jan 01, 2026 |
| Individual RE Investment Cap | 10% of AIF Corpus |
| Aggregate RE Investment Cap | 20% of AIF Corpus |
| Provisioning Trigger | Holding > 5% in AIF + Downstream investment in Debtor Company |
| Provisioning Amount | 100% of proportionate exposure |
| Debtor Company Window | Exposure in preceding 12 Months |
| Subordinated Units | Deduct from Capital |
Practice Question
Q. As per the RBI (Investment in AIF) Directions, 2025, if a Regulated Entity (RE) contributes more than 5% of the corpus of an AIF Scheme which has a downstream investment in a "Debtor Company" of the RE, what is the provisioning requirement for the RE?
A) 10% on the entire AIF investment
B) 20% on the downstream investment
C) 50% on the direct loan exposure
D) 100% on the proportionate investment in the debtor company
E) No provisioning required if the loan is standard
Answer: D) 100% on the proportionate investment in the debtor company
Returns - Department of Payment and Settlement Systems - Submission in CIMS
1. What is CIMS? (The Background)
- Full Form: Centralised Information Management System
- What is it? It is the RBI's Next-Generation Data Warehouse
- Function: It is a centralized, cloud-based platform where banks upload their data. It allows RBI to process large volumes of data for better analysis and supervision
- Think of it as a giant, high-tech Dropbox where all banks must drop their homework (reports) for the RBI to check
2. The New Update: Moving Returns to CIMS
The RBI has decided to move two specific reports (returns) from old systems to this new CIMS portal.
The Two Returns (Memorize the Codes):
| Return Name | Return Code | Frequency |
|---|---|---|
| Internet Banking Return | R065 | Monthly |
| Mobile Banking Return | R102 | Monthly |
3. Important Timelines
- Start Date: This reporting starts for the period of August 2025 onwards
- Submission Deadline: Banks must submit these returns by the 7th of the succeeding month
- Example: For the month of August 2025, the report must be submitted by September 07, 2025
4. Who needs to do this? (Applicability)
This rule applies to almost every banking entity handling payments:
- Scheduled Commercial Banks (SCBs) – including RRBs (Regional Rural Banks)
- Co-operative Banks: UCBs (Urban), StCBs (State), DCCBs (District Central)
- Payment Banks and Small Finance Banks (SFBs)
5. Legal Basis
This directive is issued under Section 12 read with Section 19 of the Payment and Settlement Systems Act, 2007.
Note: Non-compliance leads to penal action.
Summary Cheat Sheet for Revision
- System Name: CIMS (Centralised Information Management System)
- Return Code R065: Internet Banking Return
- Return Code R102: Mobile Banking Return
- Frequency: Monthly
- Due Date: 7th of the next month
- Act: Payment and Settlement Systems Act, 2007
Master Direction on Regulation of Payment Aggregator (PA)
1. What is a Payment Aggregator (PA)?
Think of a Payment Aggregator (PA) as the middleman between a Shop/Website and the Bank.
- Role: They collect money from customers (you) via various methods (Cards, UPI, Net Banking) and pool it together to pay the Merchant (Seller)
- Example: Razorpay, BillDesk, Pine Labs
Key Difference: PA vs. Payment Gateway (PG)
- PA: Handles the actual money. They collect it and settle it. (Requires RBI License)
- PG: Only provides the technology to route the transaction. They do not touch the money. (Does not require authorization, just technology compliance)
2. Categories of PAs (New Exam Topic)
RBI has classified PAs into three distinct types:
- PA – Online (PA-O): Facilitates e-commerce transactions where the buyer and seller are not physically present (e.g., Buying from Amazon)
- PA – Physical (PA-P): New Category. Facilitates transactions where the device and card/phone are physically present in close proximity (e.g., Point of Sale machines at a supermarket)
- PA – Cross Border (PA-CB): Handles Import/Export payments
- Inward: For Exports (Money coming in)
- Outward: For Imports (Money going out)
3. Who Needs a License? (Authorization)
- Banks: Do not need separate authorization. They are already regulated
- Non-Banks: Must apply to RBI for a Certificate of Authorisation (CoA)
- Existing Physical PAs: Companies already doing Physical POS business must apply to RBI by December 31, 2025. If they fail, they must wind up business by February 28, 2026
4. Capital Requirements (Very Important Numbers)
To start or run a PA business, a company must have deep pockets (Net Worth) to ensure financial stability.
| Milestone | Net Worth Requirement |
|---|---|
| At the time of Application | ₹15 Crore |
| By end of 3rd Financial Year | ₹25 Crore |
| Ongoing Basis | Must maintain ₹25 Crore always |
Note: Net Worth includes Equity, Reserves, and Compulsorily Convertible Preference Shares (CCPS).
5. Governance & Conduct
- Fit and Proper: Directors must be honest, have no criminal record, and be financially sound
- Nodal Officer: PA must appoint a Nodal Officer for handling grievances and display their details on the website
- Transaction Limits (PA-Cross Border): For Cross-Border PAs, the maximum value per transaction is capped at ₹25 Lakh
- ATM PIN: PAs cannot use ATM PIN as a factor of authentication for online (Card Not Present) transactions
6. Merchant Onboarding (KYC)
PAs are responsible for checking who they are doing business with.
- Due Diligence: PA must check the Merchant's background (KYC)
- Small Merchants (Turnover < ₹40 Lakh): Simplified KYC is allowed (Just PAN verification + One Official Document)
- Marketplace Rule: A Marketplace (like Flipkart) cannot collect money for a seller who is not onboarded/verified by them
7. Escrow Account (The "Piggy Bank" Rules)
A PA cannot mix the merchant's money with its own money. It must be kept in a separate Escrow Account with a Scheduled Commercial Bank.
Types of Accounts:
- Escrow Account: For Domestic transactions
- Inward Collection Account (InCA): For Exports (PA-CB)
- Outward Collection Account (OCA): For Imports (PA-CB)
Key Operational Rules:
| Feature | Rule |
|---|---|
| Pre-funding | Allowed for Domestic Escrow (PA puts own money to speed up settlement). Not allowed for Cross-Border |
| Cash on Delivery (CoD) | Escrow account cannot be used for CoD transactions |
| Interest | Generally, No Interest is paid on Escrow. Exception: Interest can be earned on the "Core Portion" (a fixed stable amount) if maintained for one year |
| Time Limit | Funds must be moved to the merchant within T+0 or T+1 days usually |
Permitted Debits (What can the money be used for?)
- Payment to Merchants
- Refunds to Customers
- Payment of commission to the PA itself
- Restricted: Payment to other third parties is strictly regulated
Summary Cheat Sheet for Exams
- Act: Payment and Settlement Systems Act, 2007 & FEMA 1999
- Capital: ₹15 Cr (Start) → ₹25 Cr (3rd Year)
- Deadline for PA-Physical: Apply by Dec 31, 2025
- Max Txn for Cross Border: ₹25 Lakh
- Escrow: Mandatory. No CoD allowed in Escrow
- New Category: PA-Physical (POS machines) is now regulated
Participation of Standalone Primary Dealers in Non-deliverable Rupee Derivative Markets
This circular is regarding Forex Markets.
1. The Core Concept: What are we talking about?
To understand this circular, you need to know two terms:
A. Standalone Primary Dealers (SPDs)
- Primary Dealers (PDs) are entities whose main job is to buy and sell Government Securities (G-Secs) directly from the RBI
- Types:
- Bank PDs: Regular banks (like SBI, HDFC) that also do PD business
- Standalone PDs (SPDs): Specialized Non-Banking Financial Companies (NBFCs) that only do this business (e.g., Goldman Sachs (India) Capital Markets, STCI Primary Dealer)
B. Non-Deliverable Derivative Contracts (NDDCs)
- The "Bet": Imagine you want to trade in Rupee vs Dollar, but you are outside India (Offshore) or in an IFSC (GIFT City)
- The Catch: You cannot actually deliver or exchange Rupees because Rupees are not fully convertible globally
- The Solution (NDDC): You enter a contract where you don't exchange the actual money. You just pay the difference (profit/loss) in Dollars. This is Cash Settled
- Simple Analogy: It's like betting on the price of gold without actually buying or selling the gold bar. You just pay/receive the price difference
2. The New Update (The Change)
Before this Circular:
- Only Banks (specifically Authorised Dealer Category-I banks) operating in the IFSC (International Financial Services Centre) were allowed to trade in these Rupee NDDCs
Now (The Update):
- Standalone Primary Dealers (SPDs) are now ALSO allowed to trade in these Non-deliverable Derivative Contracts (NDDCs) involving the Rupee
Condition:
- The SPD must be registered as an Authorised Dealer Category-III (AD Cat-III)
3. Static Banking Awareness: Categories of Authorised Dealers
This is often asked in the "Static" section of the exam. The RBI authorizes entities to deal in forex under FEMA, 1999.
| Category | Who are they? | What can they do? |
|---|---|---|
| AD Category-I | Commercial Banks (SBI, ICICI, etc.) | All current & capital account transactions (Full Power) |
| AD Category-II | Upgraded Money Changers, Co-op Banks | Specified non-trade transactions (Travel, Gifts, etc.) |
| AD Category-III | Financial Institutions & SPDs | Specific forex transactions incidental to their main business (e.g., Forex for hedging G-Secs) |
| FFMC | Full Fledged Money Changers | Only purchase of forex and sale for private/business travel |
Why SPDs? Since SPDs trade heavily in government bonds, they face currency risks. Allowing them to trade in NDDCs helps them hedge (protect) their foreign currency risks better.
4. Legal Basis (For the "Acts & Sections" Question)
- Act Permitting this: Section 45W of the Reserve Bank of India Act, 1934
- Forex Authorization: Section 10(1) of the Foreign Exchange Management Act (FEMA), 1999
Summary Cheat Sheet for Exams
- Who is newly permitted? Standalone Primary Dealers (SPDs)
- Which Category must they hold? AD Category-III
- What can they trade? Non-deliverable Derivative Contracts (NDDCs) involving the Rupee
- With whom can they trade?
- Users (Clients)
- AD Cat-I banks in IFSC (IBUs)
- Banks overseas
Reserve Bank of India (Authentication mechanisms for digital payment transactions) Directions, 2025
The Core Concept: Until now, "Two-Factor Authentication" (2FA) mostly meant Password + SMS OTP. The RBI now wants to modernize this. They are saying: "We don't care which technology you use, but it must follow these strict safety principles."
1. The "2-Factor" Rule
- Mandatory: Every digital payment must have at least Two factors
- What counts as a "Factor"?
- Something you HAVE: Card, Phone, Token
- Something you KNOW: PIN, Password, OTP
- Something you ARE: Fingerprint, Face ID (Biometrics)
2. The "Dynamic" Rule (Crucial for Exams)
- For online transactions (Card Not Present), at least one of the two factors must be Dynamic
- Meaning: It must be generated fresh for that specific transaction (like an OTP or a dynamic token). You cannot use two static passwords
3. Important Deadlines (Memorize These!)
| Type of Transaction | Compliance Deadline |
|---|---|
| Domestic Digital Payments | April 01, 2026 |
| Cross-Border (Card Not Present) | October 01, 2026 |
4. Special Mention: DigiLocker
The RBI has suggested that banks may explore using DigiLocker as a secure channel to notify customers about high-risk transactions.
5. Liability
If a fraud happens because the bank/issuer did not follow these rules, the Issuer must compensate the customer in full without arguing ("without demur").
Summary Cheat Sheet for Revision
| Feature | Details |
|---|---|
| Auth Regulation Name | RBI (Authentication mechanisms) Directions, 2025 |
| Domestic Deadline | April 01, 2026 |
| Cross-Border Deadline | October 01, 2026 |
| Dynamic Factor | Mandatory for at least 1 factor (except card-present) |
Investment by Co-operative Banks in Shared Service Entity (SSE)
The Background:
- NABARD (the boss of rural development) is setting up a Shared Service Entity (SSE)
- Purpose: To provide technology support (like Core Banking Solutions) to State Co-operative Banks (StCBs) and Central Co-operative Banks (CCBs)
- The Circular: RBI is allowing these Co-operative banks to invest money (buy shares) in this SSE
The Exam Rule (The 5% Limit):
- Who can invest? StCBs and CCBs
- How much? They can invest up to 5% of their Owned Funds (Paid-up Capital + Reserves)
- The Exemption: Usually, banks have strict limits on investing in "Non-SLR" (Non-Government) securities. This specific investment in SSE is EXEMPT from those general limits
Practice Questions
Q1. As per the RBI (Authentication mechanisms) Directions, 2025, Payment System Providers must ensure compliance for domestic transactions by:
A) October 1, 2025
B) January 1, 2026
C) April 1, 2026
D) October 1, 2026
E) March 31, 2027
Answer: C) April 1, 2026
Q2. State Co-operative Banks (StCBs) can invest in the equity of the 'Shared Service Entity' (SSE) set up by NABARD up to a maximum of:
A) 2% of Total Assets
B) 5% of Owned Funds
C) 10% of Paid-up Capital
D) 15% of Non-SLR Investments
E) ₹100 Crore
Answer: B) 5% of Owned Funds
Special Clearing in Cheque Truncation System on October 3, 2025
This circular is an operational directive to manage the technical switch over to the new "Continuous Clearing" system. For exams, the dates, codes, and timings are the most likely objective questions.
1. The Event: Special Clearing Session
The Context: As you learned in the previous topic, the RBI is switching CTS from "Batch Processing" to "Continuous Clearing".
- Phase 1 Start Date: October 4, 2025
- The Problem: Before starting the new system on Oct 4, the RBI needs to clear all pending work and test the transition
- The Solution: A Special Clearing Session will be held on October 3, 2025 (Friday)
2. Schedule for October 3, 2025 (Memorize the Timings)
On this specific day, regular clearing will not happen after the morning return session. Instead, a "Special Session" will run.
| Session Type | Purpose | Timing |
|---|---|---|
| Regular Return Session | To process returns for cheques presented on Oct 1 | 08:00 AM – 10:00 AM |
| Special Presentation | To present new cheques for clearing | 11:00 AM – 03:00 PM |
| Special Return | To return unpaid cheques from the special presentation | 05:00 PM – 08:00 PM |
3. Exam-Specific Technical Codes
Banks use specific codes in their software to identify sessions. These are often asked in "Banking Technology" questions.
- Clearing Type Code: "99" (Used specifically for this Special Clearing)
- Presentation Session Number: "21"
- Return Session Number: "22"
Note: If a bank uses any other code, the cheques will be rejected for this session.
4. Static Banking Awareness: CTS Revision
A. What is Truncation?
Stopping the physical movement of the cheque. The Presenting Bank scans it and sends only the Image + Data to the Clearing House.
B. Security Features
- PKI: End-to-end Public Key Infrastructure is used to encrypt data
- CTS-2010 Standards: Mandatory security features like Watermark, Void Pantograph (shows "VOID" if photocopied), and Bank Logo in invisible ink
C. Positive Pay System (PPS)
- Purpose: To prevent fraud by verifying details before clearing
- Limits:
- ₹50,000+: Banks must offer the facility
- ₹5,00,000+: Banks may make it mandatory
D. Retention of Cheque
- Who keeps the physical cheque? The Presenting Bank
- For how long? 10 Years
Summary Cheat Sheet for Revision
- Special Clearing Date: Oct 3, 2025
- Clearing Type Code: 99
- Phase 1 (Continuous) Starts: Oct 4, 2025
- Physical Cheque Retention: 10 Years
- Mandatory PPS Discretion Limit: ₹5 Lakhs
Reserve Bank of India (Settlement of Claims in respect of Deceased Customers of Banks) Directions, 2025
1. Overview & Applicability
- Objective: To make it easier for families to claim money when a customer dies, reducing paperwork and delays
- Who must follow this? All Commercial Banks and Co-operative Banks
- Deadline: Banks must implement these instructions by March 31, 2026
- Exclusions: These rules do NOT apply to Government schemes like PPF or Senior Citizen Savings Scheme (SCSS). Those follow their own specific rules
2. Key Definitions (The Numbers You Must Know)
For the "Simplified Procedure" of settlement, the RBI has defined a "Threshold Limit".
| Bank Type | Threshold Limit |
|---|---|
| Co-operative Banks | ₹5 Lakh |
| Commercial Banks (and others) | ₹15 Lakh |
3. Scenario A: If there is a Nominee (or Survivor)
This is the easiest path. If the deceased person had appointed a nominee:
- The Rule: Paying the nominee is a valid discharge of the bank's liability
- Trustee Role: The bank must inform the nominee in writing that they are receiving the money as a Trustee for the legal heirs (meaning they hold the money, but the actual owners are the heirs)
- What the Bank CANNOT Ask:
- Succession Certificate, Probate of Will, or Letter of Administration
- Bond of Indemnity or Surety
- Documents Required: Just the Claim Form, Death Certificate, and KYC of the nominee
4. Scenario B: No Nominee (Simplified Procedure)
If there is no nominee, but the amount is below the Threshold Limit (₹5L/₹15L) and there is no dispute:
- Bond of Indemnity: Required (Signed by the claimant)
- Indemnity Bond means: "Please give me the money now. If, in the future, any dispute arises or another claimant proves they are the true owner, I promise to pay the bank back for any loss it suffers because it paid me."
- Bond of Surety: NOT Required (The bank cannot ask for a third-party guarantee for small amounts)
- Other Documents: Death Certificate, KYC, and a Letter of Disclaimer from other legal heirs
5. Scenario C: Claims Above Threshold
If the amount is above the threshold limit (₹5L/₹15L):
- Documents: The bank will ask for legal proof like a Succession Certificate or Legal Heir Certificate
- Surety: In this case, the bank CAN ask for a Bond of Surety from a third party
6. Special Case: Missing Persons
Usually, if a person goes missing, the family needs a court order declaring "Civil Death".
- The Exemption: To help common people, if the claim amount is less than ₹1 Lakh, the bank can settle it without a court order
- Alternate Document: A copy of the FIR and the Non-Traceable Report from the police is enough
7. Safe Deposit Lockers
- Inventory: Before handing over contents, an inventory must be made
- Witnesses: The inventory must be made in the presence of Two Independent Witnesses (who are not bank employees)
- Valuation: The contents must be valued by an independent valuer
8. Timelines & Penalties (Most Likely Exam Question)
The RBI has set strict penalties if banks delay the settlement.
| Feature | Rule |
|---|---|
| Settlement Timeline | Claims must be settled within 15 Days of receiving all documents |
| Penalty (Deposits) | If delayed, bank pays interest at Bank Rate + 4% |
| Penalty (Lockers) | If delayed, bank pays compensation of ₹5,000 per day |
9. Premature Withdrawal of Term Deposits
- No Penalty: If a depositor dies, the bank must allow premature withdrawal of the FD without any penal charge
- Joint Accounts: If there is a "Survivorship Clause" (like Either or Survivor), the survivor can withdraw the FD prematurely without needing consent from the legal heirs of the deceased
Summary Cheat Sheet
- Threshold: ₹15L (Commercial) / ₹5L (Co-op)
- Missing Person Limit: ₹1 Lakh
- Settlement Time: 15 Days
- Penalty Interest: Bank Rate + 4%
- Locker Delay Fine: ₹5,000/day
Reserve Bank of India (Interest Rate on Advances) (Amendment Directions), 2025
This specific circular introduces two major changes to how banks handle interest rates on loans.
1. Reducing the "Spread" for Customer Retention
The Concept: When you take a loan linked to an external benchmark (like the Repo Rate), your interest rate has two parts:
- External Benchmark (Repo Rate): Decided by RBI
- Spread: The extra margin added by the bank (Profit + Risk + Operating Cost)
The Old Rule: Banks could change the "Spread" components (like operating costs) only once in three years. They couldn't change it frequently.
The New Amendment (The Change): Banks are now allowed to reduce the spread earlier than 3 years specifically for "Customer Retention."
- Why? If a good customer wants to leave your bank because another bank is offering a cheaper loan, you can now legally lower their "Spread" immediately to make them stay
- Condition: It must be done on justifiable grounds and in a non-discriminatory manner
2. Switching from Floating to Fixed Rate
The Context: In 2023, RBI issued rules saying borrowers must be given a choice to switch from Floating (Variable) rates to Fixed rates when interest rates are reset.
The Change (One Word Makes a Difference):
- Previous Wording: Banks "shall" (must) provide the option to switch to a fixed rate
- New Wording: Banks "may, at its option" provide the choice to borrowers
What does this mean for exams? Offering a switch to a "Fixed Rate" is now discretionary (optional) for the bank. They are not legally forced to offer it if their Board policy decides against it.
3. Important Date
- Effective Date: These amendments come into force from October 1, 2025
Summary Cheat Sheet for Exams
| Feature | Old Rule | New Rule (2025) |
|---|---|---|
| Spread Reset Frequency | Once in 3 years | Can reduce earlier for Retention |
| Switch to Fixed Rate | Mandatory ("Shall") | Optional ("May") for the bank |
| Effective Date | - | October 1, 2025 |
Lending Against Gold and Silver Collateral (Amendment 2025)
The Context: The RBI wants to ensure that banks do not encourage speculation (gambling) on gold prices. They want gold loans to be used for productive purposes, not just for hoarding gold.
1. The General Prohibition (What is Banned?)
Lenders (Banks/NBFCs) strictly CANNOT give loans for:
- Buying Gold: You cannot take a loan to purchase gold (coins, jewellery, ETFs, or Mutual Funds backed by gold)
- Against Primary Gold: You cannot pledge "Primary Gold" (like 24-carat gold bars, biscuits, or bullion) to get a loan
- Why? Primary gold is usually held for investment/speculation. Lenders usually accept ornaments/jewellery as collateral, not bars
2. The Important Exception (Exam Question Material)
There is an exception for businesses that need gold to run their factory (e.g., Jewellery manufacturers).
- Who can lend?
- Scheduled Commercial Banks (SCBs)
- Tier 3 and Tier 4 Urban Co-operative Banks (UCBs)
- For what purpose?
- Need-based Working Capital Finance
- Borrowers must use the gold/silver as Raw Material or Input (e.g., a goldsmith making jewellery)
- Condition: The bank must ensure the borrower is not just holding the gold for "Investment" or "Speculation"
Exam Tip: Remember that Tier 1 and Tier 2 UCBs are NOT mentioned in this permission. Only Tier 3 & 4 (larger UCBs) can extend this facility along with SCBs.
Basel III Capital Regulations (Perpetual Debt Instruments)
The Context: Banks need to maintain a certain amount of capital (Basel III norms) to stay safe. Part of this capital comes from issuing bonds called Perpetual Debt Instruments (PDIs).
- PDI: A bond that has no maturity date. The bank pays interest forever, but rarely pays back the principal unless they want to
- The Issue: Banks sometimes raise this money from Foreign Markets (in foreign currency). The RBI sets a limit on this to prevent too much foreign risk
1. The New Limit (Memorize This Number)
- Updated Rule: The maximum amount of Foreign Currency PDIs (or Rupee Denominated Bonds issued overseas) that can be counted as Additional Tier 1 (AT1) Capital is:
- 1.5% of Risk Weighted Assets (RWAs)
2. Effective Date
- This new limit applies from October 01, 2025
3. Applicability (Who must follow this?)
- Scheduled Commercial Banks (SCBs)
- Small Finance Banks (SFBs)
- Payments Banks
- Excluded: Regional Rural Banks (RRBs)
Summary Cheat Sheet for Revision
| Feature | Rule / Limit |
|---|---|
| Loan for purchase of Gold | Prohibited |
| Loan against Primary Gold (Bars) | Prohibited (Generally) |
| Working Capital Exception | Allowed for SCBs & Tier 3/4 UCBs |
| Foreign PDI Limit (Basel III) | 1.5% of RWAs |
| PDI Circular Effective Date | Oct 01, 2025 |
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