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In-depth analysis of RBI Circulars for May 2026
RBI Circulars May 2025
This lesson covers the key regulatory updates and circulars issued by the Reserve Bank of India in May 2025.
Investments by Foreign Portfolio Investors in Corporate Debt Securities through the General Route – Relaxations
This circular brings major relief for Foreign Portfolio Investors (FPIs) investing in the Indian corporate bond market. It removes two major restrictions that previously limited how they could invest.
1. The Two Major Relaxations
A. Short-Term Investment Limit (Withdrawn)
- Old Rule: FPIs were restricted from investing more than 30% of their total investment in "Short-Term" corporate bonds (bonds with less than 1 year maturity)
- New Rule: This requirement is Withdrawn. FPIs can now invest as much as they want in short-term corporate bonds without any percentage cap
B. Concentration Limit (Withdrawn)
- Old Rule: FPIs were not allowed to invest more than 50% of any single issue of a corporate bond (i.e., they couldn't buy the whole chunk of a company's bond issue)
- New Rule: This requirement is Withdrawn. FPIs can now buy a larger share (or even all) of a single corporate bond issue if they wish
2. Target Segment
- Who: Foreign Portfolio Investors (FPIs)
- Instrument: Corporate Debt Securities (Corporate Bonds/NCDs)
- Route: General Route (The standard investment channel)
Note: These relaxations specifically apply to Corporate Debt. The circular does not mention removing these limits for Government Securities (G-Secs).
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RBI Circulars May 2025
This lesson covers the key regulatory updates and circulars issued by the Reserve Bank of India in May 2025.
Investments by Foreign Portfolio Investors in Corporate Debt Securities through the General Route – Relaxations
This circular brings major relief for Foreign Portfolio Investors (FPIs) investing in the Indian corporate bond market. It removes two major restrictions that previously limited how they could invest.
1. The Two Major Relaxations
A. Short-Term Investment Limit (Withdrawn)
- Old Rule: FPIs were restricted from investing more than 30% of their total investment in "Short-Term" corporate bonds (bonds with less than 1 year maturity)
- New Rule: This requirement is Withdrawn. FPIs can now invest as much as they want in short-term corporate bonds without any percentage cap
B. Concentration Limit (Withdrawn)
- Old Rule: FPIs were not allowed to invest more than 50% of any single issue of a corporate bond (i.e., they couldn't buy the whole chunk of a company's bond issue)
- New Rule: This requirement is Withdrawn. FPIs can now buy a larger share (or even all) of a single corporate bond issue if they wish
2. Target Segment
- Who: Foreign Portfolio Investors (FPIs)
- Instrument: Corporate Debt Securities (Corporate Bonds/NCDs)
- Route: General Route (The standard investment channel)
Note: These relaxations specifically apply to Corporate Debt. The circular does not mention removing these limits for Government Securities (G-Secs).
Summary Cheat Sheet for Exams
| Restriction | Status for Corporate Debt |
|---|---|
| Short-Term Investment Limit | Removed / Withdrawn |
| Concentration Limit | Removed / Withdrawn |
| Applicable Route | General Route |
Practice Question
Q. As per the recent RBI relaxation, Foreign Portfolio Investors (FPIs) investing in Corporate Debt Securities through the General Route are now EXEMPT from complying with:
A) KYC Norms
B) Minimum Residual Maturity norms only
C) Short-term investment limit and Concentration limit
D) Tax Deduction at Source (TDS)
E) Reporting to NSDL
Answer: C) Short-term investment limit and Concentration limit
Reserve Bank of India (Digital Lending) Directions, 2025
1. Important Dates (Memorize These!)
Unlike most circulars that have one effective date, this one has three different timelines:
| Provision | Effective Date |
|---|---|
| General Provisions | Immediately |
| Reporting of DLAs to RBI (Para 17) | June 15, 2025 |
| Multi-Lender LSP Rules (Para 6) | November 1, 2025 |
2. Key Definitions (Exam Fodder)
- Digital Lending App (DLA): Apps with a user interface that facilitate borrowing. Includes apps run by the Bank (RE) itself or by its agent (LSP)
- Lending Service Provider (LSP): An agent (intermediary) that handles functions like customer acquisition, underwriting support, or recovery for the Bank
- Default Loss Guarantee (DLG): A deal where an LSP guarantees to compensate the Bank if the borrower defaults, up to a certain percentage
- Annual Percentage Rate (APR): The total annual cost of credit to the borrower, including interest and all other charges (like processing fees)
3. New Rules for "Loan Aggregators" (Para 6)
Context: LSPs (like loan comparison apps) that partner with Multiple Lenders (Banks/NBFCs).
The "Unbiased" Rule:
- The app must show a Digital View of ALL matching loan offers, not just the one that pays them the highest commission
- It must also disclose the names of lenders who rejected (unmatched) the request
- No "Dark Patterns": The app cannot use deceptive design to push/promote one specific lender over others
Disclosure: The digital view must show the APR, Tenor, Repayment amount, and Penal charges for easy comparison.
Effective Date for this Rule: November 1, 2025
4. Customer Protection Measures
A. Cooling-off Period (Exit Option)
- What is it? A window of time after taking a loan where the borrower can change their mind and exit without penalty
- Cost to Exit: Principal + Proportionate APR (Interest for days used). No other penalty
- Duration: Decided by the Bank's Board, but cannot be less than One Day
- Processing Fee: The bank may retain a reasonable one-time processing fee if the customer exits
B. Data Privacy (The "24-Hour" Rule)
- Storage: All data must be stored in servers within India
- Processing Abroad: If data is processed abroad, it must be deleted from foreign servers and brought back to India within 24 Hours
C. Grievance Redressal
- Timeline: If the Bank/LSP does not resolve a complaint within 30 days, the borrower can complain to the RBI Ombudsman (RB-IOS) via the CMS portal
5. Reporting Mandate (Para 17)
- The Task: Banks (REs) must report details of all their Digital Lending Apps (DLAs) to the RBI
- Where? On the CIMS (Centralised Information Management System) portal
- Deadline: June 15, 2025
- Certification: The Chief Compliance Officer (CCO) must certify that this data is correct
- Public List: RBI will publish this list on its website so customers can verify genuine apps. RBI does not validate the data; it publishes it "as is"
6. Default Loss Guarantee (DLG) Rules
Who can give DLG?
- LSP provide as guarantee a certain percentage to the bank called DLG
- Only an LSP that is incorporated as a Company under the Companies Act, 2013 (Not a proprietorship or partnership firm)
Allowed Forms:
- Cash deposited with the RE
- Fixed Deposit (with lien)
- Bank Guarantee
Invocation Timeline: The Bank must invoke the guarantee within 120 days of the loan becoming overdue. If loan by LSP becomes NPA, then within this time the bank takes money from the above securities.
Tenor: The guarantee agreement must last at least as long as the longest loan tenure in the portfolio. And this guarantee will last until the loan stands.
Summary Cheat Sheet for Exams
| Feature | Rule / Deadline |
|---|---|
| Para 6 (Multi-lender) Effective | Nov 01, 2025 |
| Para 17 (Reporting) Deadline | June 15, 2025 |
| Reporting Portal | CIMS |
| Min Cooling-off Period | 1 Day |
| Data Repatriation Time | 24 Hours |
| DLG Invocation Max Time | 120 Days |
| Permitted DLG Provider | LSP (Company) |
Practice Question
Q. As per the RBI (Digital Lending) Directions, 2025, Regulated Entities (REs) must ensure that any data processed outside India is deleted from foreign servers and repatriated to India within:
A) 12 hours
B) 24 hours
C) 48 hours
D) 72 hours
E) 7 days
Answer: B) 24 hours
Exim Bank Line of Credit (Mongolia)
- Lender: Export-Import Bank of India (Exim Bank)
- Borrower: Government of Mongolia (GO-MNG)
- Amount: USD 700 Million
- Purpose: Financing the construction of a Crude Oil Refinery Plant in Mongolia
- Effective Date: May 06, 2025
- Disbursement Deadline: 48 months after the scheduled completion of the contract
- Commission: No agency commission is payable for exports under this LoC
Changes to the Second Schedule (RBI Act, 1934)
The "Second Schedule" is the official list of Scheduled Banks in India. Two major updates happened:
A. Name Change (Merger)
- Old Name: North East Small Finance Bank Limited
- New Name: slice Small Finance Bank Limited
- Context: This follows the merger of the fintech "Slice" with the bank
B. New Inclusion
- Bank Added: The Vishweshwar Sahakari Bank Ltd., Pune
- Status: It is now officially a "Scheduled Bank"
Static GK: Scheduled Bank Criteria
- Must be listed in the Second Schedule of the RBI Act, 1934
- Paid-up capital and reserves must be at least ₹5 Lakh
- Benefits: Eligible for loans from RBI at Bank Rate & membership of clearing houses
FIRMS Portal Reporting (Investment Vehicles)
This update concerns Foreign Investment Reporting for "Investment Vehicles" (like REITs/InvITs).
The Issue: Reporting of Partly Paid Units issued to foreign investors
The One-Time Relief:
- For units issued before this circular: You have 180 Days to report them on Form InVI
- Penalty: No Late Submission Fee will be charged for these past cases
The Standard Rule:
- For units issued on or after this circular: Must be reported within 30 Days
Portal Used: FIRMS (Foreign Investment Reporting and Management System)
Summary Cheat Sheet for Exams
| Topic | Key Fact / Limit |
|---|---|
| Exim Bank LoC | $700 Mn to Mongolia (Oil Refinery) |
| New Bank Name | slice Small Finance Bank |
| New Scheduled Bank | Vishweshwar Sahakari Bank (Pune) |
| Scheduled Bank Capital | Min ₹5 Lakh |
| FEMA Reporting Relief | 180 Days window for past partly paid units |
| Standard Reporting Time | 30 Days (Form InVI) |
Practice Question
Q. The Reserve Bank of India recently included "The Vishweshwar Sahakari Bank Ltd." in the Second Schedule of the RBI Act, 1934. Where is this bank headquartered?
A) Mumbai
B) Nagpur
C) Pune
D) Nashik
E) Aurangabad
Answer: C) Pune
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