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In-depth analysis of RBI Circulars for August 2026
RBI Circulars August 2025
Exam-Focused Commentary – Detailed analysis of all major RBI circulars issued in August 2025, including high-yield topics, summary cheat sheets, and practice questions.
1. International Trade Settlement in Indian Rupees (INR)
Overview
Banks can now open Special Rupee Vostro Accounts (SRVAs) faster to facilitate international trade settlement in Indian Rupees.
What Changed?
| Aspect | Previously | Now |
|---|---|---|
| Approval Process | Indian banks (AD Banks) had to seek RBI's prior approval to open SRVAs for foreign banks | AD Banks can open SRVAs without prior RBI approval |
| Processing Time | Slow (waiting for RBI approval) | Fast (immediate account opening) |
Why is This Important?
- For India: Accelerates the use of Indian Rupee (INR) in international trade (instead of US Dollars)
- For Global Trade: Positions INR as an emerging global currency
- For Foreign Banks: Simplifies the account opening process in India
Key Terminology
Vostro Account: An account that a foreign bank holds in India (in Indian Rupees) with an Indian bank.
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RBI Circulars August 2025
Exam-Focused Commentary – Detailed analysis of all major RBI circulars issued in August 2025, including high-yield topics, summary cheat sheets, and practice questions.
1. International Trade Settlement in Indian Rupees (INR)
Overview
Banks can now open Special Rupee Vostro Accounts (SRVAs) faster to facilitate international trade settlement in Indian Rupees.
What Changed?
| Aspect | Previously | Now |
|---|---|---|
| Approval Process | Indian banks (AD Banks) had to seek RBI's prior approval to open SRVAs for foreign banks | AD Banks can open SRVAs without prior RBI approval |
| Processing Time | Slow (waiting for RBI approval) | Fast (immediate account opening) |
Why is This Important?
- For India: Accelerates the use of Indian Rupee (INR) in international trade (instead of US Dollars)
- For Global Trade: Positions INR as an emerging global currency
- For Foreign Banks: Simplifies the account opening process in India
Key Terminology
Vostro Account: An account that a foreign bank holds in India (in Indian Rupees) with an Indian bank.
Practice Question
Q: The new directions allow AD Banks to open Special Rupee Vostro Accounts (SRVAs) without:
A) KYC verification
B) Prior approval from the Ministry of Finance
C) Prior approval from the Reserve Bank of India (RBI) ✅
D) Informing the account holder
E) Following FEMA guidelines
Answer: C
Explanation: The key change is that AD Banks no longer need RBI's prior approval to open SRVAs. All other compliance requirements (KYC, FEMA, etc.) remain applicable.
2. Co-Lending Arrangements (CLA) Directions, 2025
The Concept
Think of Co-Lending as a "Buddy System" for loans where two financial entities team up to lend money to the same borrower.
The Players:
- Originating RE (The Finder): Usually a smaller entity with local reach (like an NBFC) that finds the customer
- Partner RE (The Funder): A bigger entity (like a large Bank) with cheaper funds that co-funds the loan
- Result: Both lend money to the same borrower for the same loan
Who Can Participate?
| Allowed | Not Allowed |
|---|---|
| ✅ Commercial Banks (Excluding SFBs, RRBs, LABs) | ❌ Small Finance Banks (SFBs) |
| ✅ AIFIs (NABARD, SIDBI) | ❌ Regional Rural Banks (RRBs) |
| ✅ NBFCs (including HFCs) | ❌ Local Area Banks (LABs) |
Exam Alert: RRBs को नहीं allowed है! This is frequently tested.
Key Rules from 2025 Directions
1. Effective Date
- January 1, 2026
- Transition: Old agreements (signed before this date) follow old rules; new ones must comply
2. Minimum Holding ("Skin in the Game")
- Each RE must hold at least 10% of the loan on their books
- Previous rules often required 20% for originators
- Memorize: 10% minimum for each partner
3. Interest Rate (Blended Rate)
- Customer pays one single interest rate = weighted average of both lenders' rates
- Formula: Blended Rate = (Share₁ × Rate₁) + (Share₂ × Rate₂)
- Example: Bank A lends 80% @ 8%, NBFC B lends 20% @ 10% → Customer pays ~8.4%
4. Transfer Timeline (The 15-Day Rule)
- Originator must transfer the Partner's share within 15 calendar days of disbursement
- Failure consequence: Loan remains with originator and can only be transferred under MD-TLE provisions
5. Asset Classification (Mirror Rule)
- If borrower becomes NPA for one lender → both must classify as NPA
- Synchronization: Default info must be shared by next working day (near-real-time)
6. Default Loss Guarantee (DLG)
- Originator can offer a guarantee to Partner to cover losses
- Maximum Cap: 5% of outstanding loan amount
7. Money Flow Mechanism
- All funds must flow through an Escrow Account for transparency
8. Not Applicable To
- Syndicated loans
- Consortium lending
- Multiple banking arrangements
Summary Cheat Sheet for Exams
| Feature | Rule / Limit |
|---|---|
| Effective Date | January 1, 2026 |
| Minimum Holding | 10% for each RE |
| Transfer Deadline | 15 calendar days from disbursement |
| DLG Cap | 5% of outstanding loan |
| Money Flow | Must go through Escrow Account |
| Asset Classification | Borrower-level (if NPA for one, NPA for both) |
| Sync Timeline | Info sharing by next working day |
| RRBs Eligible? | ❌ No |
Practice Question
Q: Under CLA Directions 2025, if the originating RE fails to transfer the partner's share within 15 days, what happens?
A) The agreement is automatically cancelled
B) RBI imposes a penalty
C) The loan remains with the originator and can only be transferred under MD-TLE provisions ✅
D) The partner RE takes over the entire loan
E) Interest rate is automatically increased
Answer: C
Explanation: If transfer doesn't happen within 15 calendar days, the loan stays on the originator's books and any future transfer must follow the Master Directions on Transfer of Loan Exposure (MD-TLE) rules.
3. Reserve Bank of India (Non-Fund Based Credit Facilities) Directions, 2025
Overview
New consolidated rules for Non-Fund Based (NFB) credit limits, replacing older scattered circulars.
Understanding NFB Facilities
| Type | Definition | Examples |
|---|---|---|
| Fund-Based | Bank gives actual cash to the borrower | Home Loan, Overdraft, Bills Discounting |
| Non-Fund Based (NFB) | Bank gives a "Promise" to pay on behalf of borrower. No immediate cash outflow | Bank Guarantees (BG), Letters of Credit (LC), Co-acceptance of bills |
Key Point: Money only moves if the borrower fails to fulfill their obligation.
Important Dates & Applicability
| Aspect | Details |
|---|---|
| Full Name | Reserve Bank of India (Non-Fund Based Credit Facilities) Directions, 2025 |
| Effective Date | April 1, 2026 |
| Regulated Entities (REs) | • Commercial Banks (including RRBs and LABs) • Co-operative Banks (UCBs, State & Central Co-op Banks) • AIFIs (NABARD, SIDBI, EXIM Bank, NHB) |
| NBFCs & HFCs | Covered ONLY for Partial Credit Enhancement (PCE), not for general guarantees |
Key Definitions (Memorize These!)
| Term | Meaning |
|---|---|
| Beneficiary | Person who receives payment if things go wrong (e.g., Government, Seller) |
| Guarantor | The Bank (RE) giving the promise |
| Obligor (Principal Debtor) | Customer asking for the guarantee |
| Co-acceptance | Bank signs a trade bill promising: "If buyer doesn't pay on due date, I will pay" |
| Devolvement | When guarantee is invoked and "Promise" converts to actual "Loan" |
General Conditions (Chapter II)
The "Existing Relationship" Rule
- Rule: Banks should generally only give NFB facilities to customers who already have a Fund-Based (Loan) facility
- Rationale: If you don't lend them cash, you don't know their credit history well enough
Exceptions (When You CAN Give NFB Without a Loan)
You can issue guarantees even without an existing loan relationship if:
- ✅ Fully secured by cash/financial collateral (100% safe)
- ✅ Customer has no loans with any bank in India
- ✅ You obtain No Objection Certificate (NOC) from customer's existing lenders
- ✅ It's for specific products like Derivatives or Partial Credit Enhancement
Prohibited Activities
- ❌ Banks cannot guarantee repayment of deposits or bonds issued by companies (unless specifically permitted by RBI)
- Reason: Prevents banks from risking capital to secure risky private investments
Devolvement Rules
- When customer fails to pay and bank pays the beneficiary → "Promise" converts to "Loan" (Fund-Based)
- NPA Classification: Standard NPA norms apply immediately upon devolvement
Rules for Guarantees (Chapter III)
Nature of Bank Guarantees (Mandatory Characteristics)
Every guarantee issued must be:
- ✅ Irrevocable: Cannot be cancelled midway
- ✅ Unconditional: No excuses when asked to pay
- ✅ Incontrovertible: Payment obligation is absolute
Limits for Co-operative Banks & RRBs (Very Important!)
Specific caps for smaller banks (UCBs, RRBs, LABs, StCBs, CCBs):
| Type of Guarantee | Maximum Limit |
|---|---|
| Total Guarantees | Max 5% of Total Assets |
| Unsecured Guarantees | Max 1.25% of Total Assets |
| Compliance Deadline | Banks currently breaching limits must comply by April 1, 2027 |
Inter-Bank Guarantees
| Scenario | Allowed? |
|---|---|
| Bank A guarantees to Bank B to help customer get a loan from Bank B | ❌ No |
| Bank A gives counter-guarantee to Bank B for a Non-Fund facility | ✅ Yes |
Specialized Cases
Stock Brokers & Commodity Brokers
- Who can issue: Only Scheduled Commercial Banks (SCBs)
- Purpose: Guarantees to Stock Exchanges in lieu of security deposits or margin requirements
Foreign Transactions (AD Banks)
- ✅ Can issue guarantees for bona fide (genuine) export/import transactions
- ✅ Can issue guarantees for foreign subsidiaries of Indian companies (strictly for business purposes)
- ❌ Cannot issue for raising general loans abroad
Summary Cheat Sheet for Exams
| Aspect | Details |
|---|---|
| Effective Date | April 1, 2026 |
| Compliance Date (RRBs/Co-ops) | April 1, 2027 |
| Total Guarantee Limit (RRB/Co-op) | 5% of Total Assets |
| Unsecured Guarantee Limit (RRB/Co-op) | 1.25% of Total Assets |
| NBFC/HFC Coverage | Only for Partial Credit Enhancement |
| Guarantee Nature | Must be Irrevocable & Unconditional |
| Devolvement Impact | Converts to Fund-Based, immediate NPA norms apply |
Practice Question
Q: Under RBI (NFB) Directions 2025, what is the maximum limit for unsecured guarantees that RRBs and Co-operative Banks can issue?
A) 5% of Total Assets
B) 1.25% of Total Assets ✅
C) 10% of Total Assets
D) 2.5% of Total Assets
E) No specific limit prescribed
Answer: B
Explanation: RRBs and Co-operative Banks have two limits: Total Guarantees capped at 5% of Total Assets, and Unsecured Guarantees specifically capped at 1.25% of Total Assets. Compliance required by April 1, 2027.
4. Partial Credit Enhancement (PCE) – Chapter IV
The Concept
Think of PCE as a "Safety Net" or "Backup Plan" for bond issuances.
How PCE Works
Scenario: Company A wants to borrow money by issuing bonds, but has an average credit rating (BBB).
Problem: Investors hesitate to buy or demand very high interest rates.
Solution: A bank steps in and says:
"I won't guarantee the whole bond, but if Company A runs short of cash to pay interest or principal, I will lend them money to cover that specific shortfall."
Result: Bond's credit rating improves (BBB → A), Company A raises money easily and cheaply.
Eligibility
Who Can Provide PCE?
| Eligible Providers |
|---|
| ✅ Scheduled Commercial Banks (SCBs) – Excluding RRBs |
| ✅ All-India Financial Institutions (AIFIs) |
| ✅ NBFCs & HFCs (Middle Layer and above) |
Who Can Receive PCE?
| Eligible Issuers |
|---|
| ✅ Corporates / SPVs (Special Purpose Vehicles) |
| ✅ Non-Deposit NBFCs with asset size ₹1,000 Cr+ |
| ✅ Municipal Corporations |
Key Features & Limits (Memorize These!)
Nature of PCE
- Form: Contingent Line of Credit (NOT a guarantee)
- Irrevocable: Bank cannot back out once committed
- No "Double Dipping": Bank cannot invest in a bond another bank has already enhanced
The Limits
| Limit Type | Cap |
|---|---|
| Individual Bank Limit | Up to 50% of bond issue size |
| Aggregate Limit | All banks together cannot exceed 50% of bond issue size |
| Bank's Own Cap | Total PCE exposure generally cannot exceed 20% of Tier 1 Capital |
What is Tier 1 Capital?
The bank's core safety cushion - money that truly belongs to the bank and its shareholders (shares + retained profits). Used to absorb losses so the bank doesn't go bankrupt.
Rating Requirements
| Requirement | Detail |
|---|---|
| Minimum Entry Rating | At least BBB- (Investment Grade) before enhancement |
| Number of Ratings | Must be rated by at least 2 agencies (ECAIs) |
The Waterfall Mechanism (Payment Priority)
- Normal Days: Company pays bondholders directly, PCE line remains undrawn (unused)
- Distress: Company is short of cash
- Drawal: Company draws money from PCE line to pay bondholders
- Repayment: Company must repay this PCE loan to the bank
Critical Timelines
| Event | Timeline |
|---|---|
| Repayment of Drawn PCE | Within 30 days |
| NPA Classification | If not repaid within 90 days, facility becomes NPA |
Accounting & Capital Requirements
| Status | Treatment |
|---|---|
| Undrawn PCE | Off-Balance Sheet (Contingent Liability) |
| Drawn PCE | On-Balance Sheet (Advance/Loan) |
| Capital Requirement | Based on pre-enhanced rating (before safety net was added) |
Note: If bond rating drops below BBB-, bank must maintain full capital for the PCE amount.
Special Rules for NBFCs & HFCs
| Requirement | Detail |
|---|---|
| Minimum Tenor | Bond must be for at least 3 years |
| End Use | Money raised must be used to refinance existing debt only |
| Exposure Cap | Bank's exposure to single NBFC/HFC via PCE restricted to 1% of bank's capital funds |
Summary Cheat Sheet for Exams
| Aspect | Details |
|---|---|
| Objective | Improve bond rating |
| Max PCE Amount | 50% of Bond Size |
| Min Rating Required | BBB- (minus) |
| Repayment of Drawal | Within 30 days |
| NPA Trigger | 90 days |
| Nature | Irrevocable Contingent Line of Credit |
| NBFC/HFC Min Tenor | 3 years |
Practice Question
Q: Under the PCE framework, if a company draws on the PCE facility but fails to repay the bank, when is the facility classified as NPA?
A) Immediately upon drawal
B) After 30 days
C) After 90 days ✅
D) After 180 days
E) After 1 year
Answer: C
Explanation: Company must repay drawn PCE within 30 days. However, NPA classification occurs only if the company fails to repay within 90 days of drawal.
5. Investment in Government Securities via Special Rupee Vostro Accounts
The Core Concept
Before This Circular
Foreign entities (like foreign banks or traders) opened Special Rupee Vostro Accounts (SRVA) to settle trade payments in Indian Rupees (INR).
Example: A Russian company sells oil to India → India pays in INR into the Russian company's SRVA → Money would just sit idle
The New Rule
RBI now allows: "Don't just let that idle money sit in the account. Invest that surplus balance into safe Indian Government loans."
Permitted Investments
| Investment Category | Description |
|---|---|
| Central Government Securities (G-Secs) | Long-term loans to the Government |
| Treasury Bills (T-Bills) | Short-term loans to the Government (less than 1 year) |
The "5th Route" for Foreign Debt Investment (Exam Point!)
Previously, there were 4 main channels for non-residents to invest in Indian Debt. Now, there are 5.
The Complete List of Investment Channels
| Route | Description |
|---|---|
| 1. General Route | Standard way for Foreign Portfolio Investors (FPIs) to buy bonds (subject to strict limits) |
| 2. Voluntary Retention Route (VRR) | FPIs get fewer restrictions if they promise to keep money in India for a fixed retention period |
| 3. Fully Accessible Route (FAR) | Foreigners can buy specific G-Secs without any limits |
| 4. Sovereign Green Bond Route (IFSC) | For buying "Green Bonds" (environment-friendly projects) via IFSC (GIFT City) |
| 5. ✨ SRVA Route (NEW) | Using surplus trade money in SRVAs to buy G-Secs/T-Bills |
Why Is This Important?
| Beneficiary | Benefit |
|---|---|
| For the Foreigner | Earns interest on idle Rupees instead of earning nothing |
| For India | Government gets more buyers for its bonds (loans), helps manage debt better |
| For the Rupee | Encourages more countries to trade in INR because they have a profitable place to park money |
Summary Cheat Sheet for Exams
| Aspect | Details |
|---|---|
| Who can invest? | Persons Resident Outside India (who hold an SRVA) |
| Source of Funds | Surplus balance in Special Rupee Vostro Account (SRVA) |
| Investment Options | Central G-Secs and Treasury Bills only |
| Legal Basis | FEMA Act, 1999 (Sections 10(4) and 11(1)) |
| Key Change | Added as the 5th Channel for non-resident debt investment |
Practice Question
Q: The SRVA Route for G-Sec investments represents which numbered channel for non-resident debt investment in India?
A) 3rd Route
B) 4th Route
C) 5th Route ✅
D) 6th Route
E) 7th Route
Answer: C
Explanation: The SRVA Route is the newest (5th) channel added to the existing four routes: General Route, VRR, FAR, and Sovereign Green Bond Route (IFSC).
6. Introduction of Continuous Clearing and Settlement in Cheque Truncation System (CTS)
The "Big Change": Continuous Clearing
Current System (Old)
| Aspect | Details |
|---|---|
| Processing Method | Batch Processing (cheques collected in piles and processed together) |
| Time Taken | Up to 2 working days (T+1 settlement cycle) |
New System (from 2025)
| Aspect | Details |
|---|---|
| Processing Method | Continuous Clearing (cheques processed one by one as soon as scanned) |
| Settlement | On-Realisation-Settlement (money settled immediately after paying bank confirms) |
| Time Taken | Reduced to just a few hours |
| Processing Window | Continuous during business hours |
Important Dates (Memorize These!)
| Phase | Date | What Happens? |
|---|---|---|
| Phase 1 | October 4, 2025 | Initial rollout of continuous clearing |
| Phase 2 | January 3, 2026 | Full transition to the new system |
Legal Basis: Payment and Settlement Systems Act, 2007 (Section 10(2) & Section 18)
Static Banking Awareness: Understanding CTS
What is CTS?
CTS (Cheque Truncation System): "Truncation" means stopping the physical movement of the cheque.
Instead of sending the actual paper cheque from Bank A to Bank B, Bank A (Presenting Bank) sends a Digital Image of the cheque to the Clearing House.
The Process
- Presenting Bank: Scans the cheque (Front & Back) + Data (MICR Band)
- Security: Signs it digitally (Public Key Infrastructure - PKI) and sends to Clearing House
- Clearing House: Processes and sends to Paying Bank
- Paying Bank: Verifies the image and releases payment
- Retention: Physical cheque stays with Presenting Bank for 10 Years
The Grids (Geography)
Currently, India is divided into 3 Grids. If a cheque travels within a grid, it's considered "Local" (No outstation charges).
| Grid | Coverage |
|---|---|
| New Delhi Grid | North India (Delhi, UP, Punjab, etc.) |
| Mumbai Grid | West & Central India (Maharashtra, Goa, MP, etc.) |
| Chennai Grid | South & East India (Tamil Nadu, Karnataka, WB, Assam, etc.) |
Future Goal: "One Nation, One Grid" — merging all 3 into a single national grid for faster outstation clearance.
Customer & Security Rules (Exam Fodder)
CTS-2010 Standards
- Since 2013: Only "CTS-2010 compliant" cheques are valid
- Features: Watermark, Bank's logo in invisible ink, Void pantograph (shows "VOID" if photocopied)
- Status of Non-CTS Cheques: Not accepted in clearing but still valid legal instruments (can't clear through CTS)
Positive Pay System (PPS) - Anti-Fraud Tool
How it works: Customer informs the bank before issuing a high-value cheque (details like Date, Name, Amount). When cheque arrives for clearing, bank matches these details.
| Threshold | Rule |
|---|---|
| ₹50,000 & above | Facility must be available to customers |
| ₹5,00,000 & above | Banks may make it mandatory |
Writing Cheques
| Aspect | Rule |
|---|---|
| Ink | No specific color prescribed by RBI, but "Image Friendly" (dark) ink recommended |
| Alterations | Not allowed (except date). If you make a mistake, use a new cheque. Cannot cross out and sign |
Summary Cheat Sheet for Exams
| Aspect | Details |
|---|---|
| New Clearing Speed | Few Hours (Continuous) |
| Phase 1 Date | October 4, 2025 |
| Phase 2 Date | January 3, 2026 |
| Physical Retention | 10 Years (by Presenting Bank) |
| Positive Pay Mandatory Cap | ₹5 Lakhs (at bank's discretion) |
| Number of Grids | 3 (moving to 1) |
| CTS Standard | CTS-2010 (since 2013) |
Practice Question
Q: Under the new "Continuous Clearing" system for CTS, the clearing cycle will be reduced from T+1 days to:
A) T+0 (Same Day/Few Hours) ✅
B) T+2 days
C) T+3 days
D) Instant (Real-Time like IMPS)
E) 24 Hours
Answer: A
Explanation: The continuous clearing system reduces the cycle from T+1 (next day) to T+0 (same day/few hours) through on-realisation-settlement.
7. Compliance with Supreme Court Order on KYC Accessibility
The Context (The "Why")
Supreme Court Order: April 30, 2025, in two cases:
- Pragya Prasun vs. Union of India (W.P.(C) 289 of 2024)
- Amar Jain vs. Union of India & Ors. (W.P.(C) 49 of 2025)
The Issue: Digital KYC processes (like Video KYC) were difficult or impossible for people with disabilities—especially:
- Visually impaired persons
- Those with facial disfigurements
- Example problem: Use of "blink your eyes" to prove you're alive/human
The Order: SC directed RBI and all financial institutions to make KYC processes inclusive and accessible.
To Whom Does This Apply?
| Regulated Entities |
|---|
| ✅ All Banks |
| ✅ All NBFCs (including HFCs) |
| ✅ All India Financial Institutions (NABARD, SIDBI, etc.) |
| ✅ Credit Information Companies (CIBIL, etc.) |
| ✅ Payment System Providers (Wallets, UPI apps) |
Key Directives from the Supreme Court
| Directive | Details |
|---|---|
| No "Blinking" Mandate | Banks cannot force customers to "blink eyes" for liveness detection in Video KYC (V-CIP). Must use alternative methods for those who cannot blink |
| Thumb Impressions | Digital KYC systems must accept thumb impressions (important for those who cannot sign) |
| Accessibility Audit | Banks must undergo periodic audits by certified professionals to check if apps/websites are disabled-friendly |
| User Testing | When testing new apps, banks must include blind persons in the testing group |
| Nodal Officer | Every bank must appoint a specific officer to oversee accessibility standards |
| Human Review | If KYC application is rejected by bot/AI, a human must review it to ensure it wasn't rejected due to disability |
| Central KYC (CKYCR) | Data should be shared via CKYCR so disabled persons don't have to do KYC repeatedly at different banks |
For Visually Impaired Customers
- Official communications must be available in:
- Braille
- Audio descriptions
- Voice-enabled formats
- Websites must follow WCAG 2.1 (Web Content Accessibility Guidelines)
Summary Cheat Sheet for Exams
| Aspect | Details |
|---|---|
| SC Order Date | April 30, 2025 |
| Cases | Pragya Prasun vs UOI & Amar Jain vs UOI |
| Liveness Check | Cannot mandate "blinking" - must have alternatives |
| Accessibility Standard | WCAG 2.1 compliance |
| Rejection Review | Human must review AI/bot rejections |
| Communication Formats | Braille, Audio, Voice-enabled |
8. RBI (Know Your Customer (KYC)) (2nd Amendment) Directions, 2025
Overview
RBI has updated its "Rulebook" (Master Directions) on KYC to:
- Make banking fairer for people with disabilities
- Tighten security for certain cash transactions
Protection for Persons with Disabilities (PwDs)
The Change (Para 11 & 18)
Previously: Banks often used automated systems to reject KYC applications if something didn't match perfectly. This often hurt people with disabilities.
Now:
| New Requirement | Details |
|---|---|
| "Application of Mind" | Bank cannot reject KYC application (especially for PwDs) automatically or carelessly. A bank officer must think carefully and review it |
| Record the Reason | If rejected, must write down the specific reason. Cannot just say "Rejected" |
| Liveness Check | In Video KYC (V-CIP), liveness checks must not exclude people with special needs |
Example: If a customer cannot blink due to a medical condition, bank must have an alternative way to verify them. Cannot deny the account.
Exam Keyword: "Application of Mind" and "Recording of Reasons" are now mandatory for KYC rejections.
Rules for "Occasional Transactions" (Money Transfer)
The Change (Para 14)
Clarifies when a bank must do Customer Due Diligence (CDD)—verifying identity—even if the person doesn't have an account.
You MUST do CDD if:
| Scenario | Threshold |
|---|---|
| Amount is ₹50,000 or more | Single or multiple connected transactions |
| International Money Transfer | Any amount (no matter how small) |
New Technology: Aadhaar Face Authentication
The Change (Para 16, Explanation 2)
| Old Rule | New Rule |
|---|---|
| Mostly relied on Fingerprint, Iris, or OTP for Aadhaar | Explicitly added "Aadhaar Face Authentication" as a valid method |
Why? Helps people whose:
- Fingerprints might be worn out (laborers, elderly)
- Cannot use other biometric methods
Easy Access to Information
The Change (Para 1)
RBI Master Direction now explicitly includes a link to the FAQs on KYC on the RBI website. Makes it a formal part of guidance for bankers when confused.
Summary Cheat Sheet for Exams
| Section | What Changed? |
|---|---|
| Rejection of KYC | Cannot be automatic. Officer must record reasons |
| Video KYC (V-CIP) | Liveness check must not exclude PwDs |
| Occasional Txn CDD | Mandatory for ₹50,000+ OR Any International Transfer |
| New Auth Mode | Aadhaar Face Authentication added |
Practice Question
Q: Under the 2nd Amendment to KYC Directions 2025, for which transactions must banks mandatorily perform Customer Due Diligence (CDD) even for non-account holders?
A) Only domestic transactions above ₹1 lakh
B) Only international transactions above ₹50,000
C) Domestic transactions of ₹50,000+ OR any international transfer ✅
D) All transactions above ₹10,000
E) Only transactions above ₹5 lakhs
Answer: C
Explanation: CDD is mandatory for occasional transactions if the amount is ₹50,000 or more (domestic), OR for any amount in case of international money transfer.
Final Summary: August 2025 Key Dates & Numbers
| Circular | Key Date/Number | Details |
|---|---|---|
| SRVA Approval | - | No prior RBI approval needed |
| CLA | Jan 1, 2026 | Effective date |
| CLA (Minimum) | 10% | Each RE must hold minimum |
| CLA (Transfer) | 15 days | Transfer deadline |
| CLA (DLG) | 5% | Maximum DLG cap |
| NFB | Apr 1, 2026 | Effective date |
| NFB (Compliance) | Apr 1, 2027 | Compliance deadline for RRBs/Co-ops |
| NFB (Total) | 5% | Max total guarantees (RRB/Co-op) |
| NFB (Unsecured) | 1.25% | Max unsecured guarantees (RRB/Co-op) |
| PCE (Max) | 50% | Individual & aggregate limit |
| PCE (Repay) | 30 days | Drawal repayment timeline |
| PCE (NPA) | 90 days | NPA trigger |
| G-Sec Route | 5th Route | SRVA is the 5th channel |
| CTS Phase 1 | Oct 4, 2025 | Initial continuous clearing |
| CTS Phase 2 | Jan 3, 2026 | Full transition |
| CTS (Retention) | 10 years | Physical cheque retention |
| Positive Pay | ₹5 Lakhs | Mandatory threshold (at bank's discretion) |
| KYC (CDD) | ₹50,000 | Threshold for occasional transactions |
| KYC (Intl) | Any amount | CDD mandatory for all international transfers |
End of August 2025 RBI Circulars
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