Related party lending rules eased for banks

MUMBAI: RBI has released a draft circular revising its framework for lending to related parties, a move expected to significantly improve ease of doing business in the financial sector. By introducing scale-based materiality thresholds, the draft ensures that only sizeable loans to related parties require board or committee approval, replacing earlier blanket restrictions that often hampered operational flexibility.

Independent directors from other banks will no longer be classified as related persons, resolving ambiguities that had complicated compliance. Principle-based exemptions further ease rigid constraints, allowing institutions to tailor lending within the regulatory perimeter.

The circular also strengthens supervisory reporting and disclosure requirements. A wide array of entities—including commercial banks and small finance bank smust now furnish detailed reports on related-party transactions, enhancing transparency.