- RBI moves to block “connected lending” by AIFIs
- Strict caps, disclosures, and audits from April 2026
- Public money safer as insider loans face crackdown
New Delhi: The Reserve Bank of India (RBI) has released a draft framework that takes direct aim at “connected lending” — loans given by banks and All India Financial Institutions (AIFIs) to their own promoters, directors, or related companies. Starting April 1, 2026, these institutions will face strict limits, board-level scrutiny, and mandatory disclosures on every such deal.
What changes for banks
- Board-led approvals: Every related-party loan must go through a special committee of the board. No shortcuts.
- Loan caps: RBI has set materiality thresholds – for the largest AIFIs, any related-party loan above ₹50 crore will need special clearance.
- No rollovers: Existing insider loans must be wound down within a year unless they meet new rules.
- Audits and reporting: Internal audits every quarter, statutory auditors must test samples, and half-yearly reports to RBI through its DAKSH portal.
What changes for promoters & directors
- No “easy money” from their own financial institutions just because of influence.
- Promoters, directors, and key management personnel must recuse themselves from any loan decision involving their companies.
- Even indirect connections — like family trusts, subsidiaries, or nominee directors — will now count as related parties.
- Quid pro quo or backdoor deals (e.g., reciprocal lending between groups) will still be treated as violations.
What this means for the public
- Reduces the risk of banks giving away public money to powerful insiders who may never repay.
- Fewer bad loans and NPAs mean stronger balance sheets for banks and safer deposits.
- Public disclosures in financial statements will show exactly how much exposure banks have to their own promoters or groups.
What happens if banks don’t follow?
RBI can hit violators with monetary penalties, force full provisioning (big hit to profits), order forensic audits, hold staff accountable, or even restrict new business until compliance improves.
Bottom line: RBI wants to stop insider-driven lending that has fuelled India’s bad loan crisis in the past. The move forces banks to treat promoters and directors like ordinary borrowers — with no shortcuts, no favours, and full public scrutiny.
Leave a Reply