RBI’s latest guidelines on financial services of commercial banks ease reorganization requirements and potential operational disruption for many banking groups, says Crisil Ratings

The guidelines provide flexibility with regard to overlapping lending activities within large banking groups

The guidelines provide flexibility regarding overlapping lending activities within major banking groups, it added.

Without the Guidelines – Reserve Bank of India (Commercial Banks – Undertaking of Financial Services) Directions, 2025, 12 banking groups in India would have had to restructure their lending operations, according to the rating agency’s assessment.

Previously, draft guidelines issued in October 2024 proposed that only one banking group entity would be able to operate a specific business form, with no overlap in lending activities between the bank and its group entities.

“It is fair to say that the RBI has included several proposals from the draft in the final guidelines,” the agency said in a note.

“These include the applicability of scale-based top-tier regulations for non-banking financial companies (NBFCs), statutory restrictions on loans and advances applicable to banks, on NBFCs within banking groups, and the 20 percent cap on a banking group’s stake in an asset reconstruction company (ARC),” the agency said in a note.

Overall, the final guidelines aim to eliminate any regulatory arbitrage by aligning regulations for all entities of the banking group, thus contributing to structural strengthening while providing flexibility in business conduct.

Subha Sri Narayanan, director, Crisil Ratings, said, “Had the draft guidelines been implemented comprehensively, 12 banking groups, accounting for 55 percent of sectoral advances, would have required restructuring of their lending activities. This would have impacted 2 to 6 percent of the consolidated advances of these individual banks.”

Lending companies

However, with the final guidelines allowing banking group entities to continue to pursue overlapping lending activities, subject to board approval, there will be no disruption to their activities.

More importantly, banks and their group entities can continue to leverage their respective strengths and serve individual customer segments in a cost-effective manner.

Narayanan noted that of the 26 entities of the banking group currently engaged in lending activities, only two have been designated as top tier NBFCs. The rest must comply with the norms for top tier NBFCs (other than the listing requirement) by March 31, 2028.

The Crisil Ratings note said the guidelines have also applied restrictions on specific loan segments for banking group entities, similar to those for banks, to align risks between entities and curb regulatory arbitrage.

Most NBFC and HFC subsidiaries of domestic banks are already compliant. However, if an affiliated lender engages in activities that are not permitted by the bank, it must be stopped.

The final guidelines have also prescribed ceilings, largely adopted from the draft, for various bank investments.

Vani Ojasvi, Associate Director at Crisil Ratings, highlighted that a notable restriction in the final guidelines is the 20 percent ceiling on a banking group’s shareholding in an ARC. There are currently 13 ARCs in which one or more banks have interests. In all but two cases, a single bank’s shareholding is less than 20 percent.

“Wherever the shareholding exceeds this prescribed limit, banks will have to partially divest by March 2028. Any material change in ownership, as and when it occurs, would be suitably taken into account by Crisil Ratings in assessing the credit profile of such entities,” she said.

Published on December 9, 2025