RBI Allows Existing Non-Compliant Related-Party Transactions to Continue Till Maturity

The Reserve Bank of India (RBI) has permitted banks to allow existing related-party transactions that do not comply with its revised regulatory framework to continue until their original maturity, providing temporary regulatory relief to the banking sector during the transition to stricter governance norms.

The clarification comes amid concerns from banks over the immediate implementation of tighter rules on related-party transactions (RPTs), which are aimed at strengthening transparency, reducing conflicts of interest, and enhancing corporate governance. Under the updated framework, certain transactions involving promoters, directors, or connected entities may not meet the revised compliance requirements.

According to regulatory guidance, while new related-party transactions must fully adhere to the revised norms, legacy transactions entered into prior to the effective date of the framework may continue without disruption until their contractual maturity. However, banks are required to ensure that no fresh exposure is added to such non-compliant arrangements and that they are closely monitored for risk.

The move is expected to ease operational challenges for banks, many of which had flagged potential financial and contractual disruptions if existing arrangements were forced to unwind immediately. Industry experts view the RBI’s decision as a pragmatic step that balances regulatory discipline with financial stability.

At the same time, the central bank has reiterated that banks must strengthen internal controls, board oversight, and disclosure mechanisms related to related-party dealings. Institutions are also expected to align their policies, approval processes, and reporting structures with the revised framework within the stipulated timelines.

The RBI’s approach underscores its broader regulatory objective of tightening governance standards across the banking system while ensuring an orderly transition that does not adversely impact credit flows or contractual certainty.

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