RBI News for February 2026
RBI tightens internal ombudsman norms to strengthen customer protection
The Reserve Bank of India (RBI) has overhauled the framework governing Internal Ombudsmen (IOs) in banks, marking a significant shift towards stronger customer protection and higher accountability within the banking system. Under the revised norms, banks can no longer close complaints proposed for rejection without a mandatory review by the Internal Ombudsman, effectively curbing arbitrary grievance disposal.
The regulator has stressed that the IO mechanism must function as an independent and credible redressal layer, rather than a procedural formality. By strengthening the authority, visibility and independence of IOs, the RBI aims to improve first-level complaint resolution and reduce the volume of unresolved grievances escalating to the RBI’s external Ombudsman scheme.
Earlier rules required banks to appoint Internal Ombudsmen but allowed considerable discretion in defining their role and reporting structure, which often diluted their effectiveness. The revised framework seeks to address these gaps, especially in an environment where digital transactions, algorithm-driven lending and outsourced services have increased the complexity of customer disputes.
The move is expected to enhance customer confidence while raising compliance and reputational risks for banks that fail to resolve grievances transparently and fairly.
Base-year revision to enable calibrated policy-making: RBI Governor
Reserve Bank of India Governor Sanjay Malhotra has welcomed the revision of base years for key macroeconomic indicators, stating that the exercise will facilitate more calibrated policy-making, support price stability and aid economic growth. The Ministry of Statistics and Programme Implementation (MoSPI) has announced that the revised base years for national accounts, including gross domestic product (GDP) and consumer price index (CPI), will come into effect from February 2026.
Malhotra described the revision as a timely step that strengthens India’s statistical system. He emphasised that the exercise goes beyond a mere base-year update, encompassing changes in methodologies, weights, item baskets, data sources and computation techniques. According to the governor, updating the CPI base year is particularly important to ensure that inflation data reflects current consumption patterns and household spending behaviour, which have evolved significantly over time.
In parallel, the RBI announced the establishment of a Centralised Receipt and Processing Centre (CRPC) to conduct preliminary scrutiny of complaints received under the Integrated Ombudsman Scheme. Effective July 1, 2026, all complaints—whether filed online, by email or post—will be processed centrally to assess admissibility before further action.
RBI backs disclosure of NPA data as banks move CIC
The Reserve Bank of India has reiterated that information related to non-performing assets (NPAs), defaulters, penalties and inspection reports is “liable to be disclosed” under the Right to Information (RTI) Act, even as four major banks have challenged such disclosures before the Central Information Commission (CIC). Bank of Baroda, RBL Bank, Yes Bank and State Bank of India have approached the CIC, objecting to the release of sensitive supervisory information.
The cases stem from RTI applications seeking details such as lists of top NPAs, willful defaulters, inspection reports and monetary penalties imposed on banks. While the RBI found the information disclosable under the RTI framework, the concerned banks appealed, citing confidentiality and potential systemic implications.
Information Commissioner Khushwant Singh Sethi noted that similar matters had earlier been examined by a double bench of the CIC. Given the significance of the issues raised, all cases have now been referred to the Chief Information Commissioner for consideration by a larger bench. Pending a final decision, disclosure of the information has been stayed through interim orders.
The outcome of the case is expected to have far-reaching implications for transparency, regulatory accountability and public access to supervisory information in the banking sector.
Reserve Bank to develop ‘Mule Hunter’ system to curb digital fraud
The Reserve Bank of India (RBI) has urged banks to actively participate in the Mule Hunter initiative, reiterating that even declining fraud levels are “not acceptable” and that the financial system must strive for a zero-fraud environment to preserve trust in digital banking. Speaking at the IBA Banking Technology Conference in Mumbai, RBI Deputy Governor T Rabi Sankar noted that while fraud incidence in payment systems such as UPI has shown a downward trend, the absolute number of cases remains significant due to the scale of digital transactions.
The Mule Hunter platform, being developed by the RBI Innovation Hub in consultation with banks, aims to identify mule accounts and improve recovery outcomes in fraud cases. Sankar said the platform could significantly enhance the ability to trace funds and limit losses even when fraud occurs. He called on banks to move beyond siloed approaches and collaborate on shared platforms, including the proposed Digital Payments Intelligence Platform.
Highlighting the limitations of standalone bank-level fraud detection systems, Sankar emphasised the role of AI-led, system-wide data sharing. He said Mule Hunter should function as trusted digital public infrastructure, enabling controlled intelligence sharing across banks while ensuring data security and privacy safeguards.
RBI to consolidate more circulars to ease compliance burden
After consolidating more than 9,000 circulars and guidelines of the Department of Regulation into 244 function-wise Master Directions, the Reserve Bank of India plans to undertake a similar exercise for other departments. The move is aimed at reducing compliance costs, improving clarity of regulatory instructions and enhancing ease of doing business for regulated entities.
In its Trend and Progress report, the RBI said the earlier consolidation exercise has already streamlined regulations for 11 categories of regulated entities by replacing a large volume of fragmented circulars with clearly structured Master Directions. Building on this initiative, the central bank has now begun work to consolidate circulars and directions issued by other departments as well.
The RBI noted that multiple overlapping instructions issued over time often increase operational complexity and compliance costs for banks and financial institutions. By harmonising and rationalising regulatory communications, the central bank aims to improve consistency, reduce interpretational ambiguities and make regulatory expectations easier to implement.
The proposed consolidation is also expected to support better governance and supervisory effectiveness, while allowing regulated entities to focus more on business operations and risk management rather than navigating multiple layers of regulatory instructions.
RBI governor asks NBFCs to closely monitor asset quality
Reserve Bank of India Governor Sanjay Malhotra has emphasised the need for strong underwriting standards and close monitoring of asset quality during a meeting with chief executive officers of non-banking finance companies (NBFCs). The interaction formed part of the RBI’s ongoing engagement with regulated entities and covered NBFCs accounting for about 53 per cent of the sector’s total assets.
As of March 31, 2025, India had nearly 9,000 NBFCs, including 15 upper-layer entities and 656 in the middle layer. The sector is dominated by 15 upper-layer NBFCs, including four housing finance companies, which together accounted for over 30 per cent of total assets. Government-owned NBFCs largely drive the middle layer, which represents nearly two-thirds of sector assets.
Malhotra highlighted the critical role played by NBFCs and housing finance companies in facilitating credit flow, particularly to underserved segments. He stressed that growth ambitions must be balanced with prudent risk management, ethical conduct and customer-centric practices. The governor also underscored the importance of prompt grievance redressal to maintain confidence and ensure the orderly and sustainable development of the sector.
RBI flags stress in microfinance, calls for close monitoring
The Reserve Bank of India has cautioned that the performance of microfinance loans needs to be monitored closely, even as overall asset quality in the non-banking finance sector improved at the end of March 2025. According to RBI data, asset quality at NBFC–microfinance institutions (MFIs) deteriorated, reflecting underlying stress and recovery challenges in the segment.
The gross non-performing asset (GNPA) ratio for NBFC–MFIs rose sharply to 4.1 per cent at end-March 2025 from 2.0 per cent a year earlier, while the net NPA ratio increased to 1.2 per cent from 0.6 per cent over the same period. The RBI noted that GNPA and NNPA ratios for the broader NBFC sector remained unchanged at end-September 2025 compared with March levels.
The central bank said NBFCs should continue diversifying funding sources and balance growth with sound and fair lending practices to support inclusive growth and financial stability. It also stressed vigilance against emerging technological and cyber risks and the need for timely grievance redressal.
While regulatory changes introduced in 2022 supported sustainable growth in microfinance by removing interest rate caps and standardising rules, the RBI said regulated entities must now closely track stress build-up in the segment.
RBI proposes three-year cooling-off for co-operative bank directors after 10-year tenure
The Reserve Bank of India (RBI) has proposed a mandatory three-year cooling-off period for directors of co-operative banks who have completed a continuous tenure of 10 years on the board. Under the draft circular, such directors can be reappointed to the same bank’s board only after completing the cooling-off period, during which they cannot be associated with the bank in any capacity other than as a regular member or customer. However, they may serve as a director on the board of another co-operative bank during this period.
The RBI clarified that continuous tenure will be calculated by aggregating time served on the boards of urban co-operative banks as well as state and central co-operative banks, including interruptions of less than three years. Breaks of three years or more will reset the tenure count. The proposal follows the Banking Regulation (Amendment) Act, which increased the maximum continuous tenure of directors from eight to 10 years. The regulator noted instances where directors resigned briefly and returned to boards to bypass tenure limits, undermining governance norms.
Finance Ministry invites public suggestions for Union Budget 2026–27
The Finance Ministry has invited suggestions from citizens for the Union Budget 2026–27, which is expected to be presented on February 1, 2026. Through a post on the MyGov platform, the ministry said it aims to reflect public aspirations while promoting inclusive growth and national progress. Individuals from all walks of life, including students, professionals, homemakers and retirees, have been encouraged to share their ideas.
Suggestions can be submitted until January 16, 2026, by logging in to www.mygov.in. The ministry said the initiative is part of the government’s emphasis on “Jan Bhagidari”, or participatory governance, and noted that several public suggestions in previous years were incorporated into the final budget.
The ministry highlighted that citizen inputs can help shape policy priorities and support India’s journey towards becoming a global economic powerhouse grounded in inclusive development. By opening the consultation process well ahead of budget preparation, the government aims to capture diverse perspectives on taxation, spending priorities and structural reforms for the upcoming financial year.
Commercial sector funding remains robust in FY26: RBI bulletin
The total flow of financial resources to the commercial sector during FY2026 so far has remained strong, supported by rising non-bank intermediation, according to the Reserve Bank of India’s latest monthly bulletin. Up to November 28, total funding to the commercial sector stood at Rs. 22.56 lakh crore, higher by Rs. 4.22 lakh crore compared with the same period last year.
Bank credit, measured as non-food credit, contributed Rs. 12.40 lakh crore, marking an increase of Rs. 1.91 lakh crore year-on-year. Funding from non-bank sources, both domestic and foreign, was even higher at Rs. 10.16 lakh crore, up by Rs. 2.30 lakh crore. RBI officials noted a significant rise in corporate bond issuances and foreign direct investment during the year so far.
The share of non-food bank credit in total funding declined to 55 per cent from 57 per cent a year ago, while the share of non-bank sources rose to 45 per cent. Bank credit growth strengthened across industry, services and personal loans, with loans against gold jewellery recording triple-digit growth amid rising gold prices.
RBI scraps prepayment charges on floating-rate loans from January 2026
The Reserve Bank of India has barred banks and non-banking finance companies (NBFCs) from levying prepayment charges on floating-rate loans, effective January 1, 2026. The move applies to loans granted to individuals for non-business purposes and to individuals and micro and small enterprises (MSEs) for business purposes, addressing long-standing customer grievances over restrictive loan clauses.
Under the RBI’s directions, small finance banks, regional rural banks, tier-3 urban co-operative banks, state and central co-operative banks, and NBFCs in the middle layer cannot levy prepayment charges on business loans to individuals and MSEs with sanctioned limits up to Rs. 50 lakh. The rules cover loans with or without co-obligants.
The central bank said inconsistent practices across lenders had led to a lack of transparency and unfair treatment of borrowers, particularly small enterprises. The new framework seeks to ensure uniformity and clarity in the levy of prepayment charges across regulated entities. The directions apply to all commercial banks except payments banks, co-operative banks, NBFCs and all-India financial institutions, subject to specified conditions based on entity type and loan size.
RBI directs banks to frame board-approved credit risk management policy
The Reserve Bank of India (RBI) has directed scheduled commercial banks to put in place a comprehensive, board-approved credit risk management policy, strengthening governance around lending practices and risk oversight. The policy must cover key areas such as lending to related parties, country risk management and unhedged foreign currency exposures, among others.
Under the amended RBI (Commercial Banks – Credit Risk Management) Directions, 2026, banks are required to define materiality thresholds for related party lending and prescribe aggregate exposure limits. All loans above the prescribed materiality threshold must be approved either by the bank’s board or a dedicated Committee on Lending to Related Parties. The framework also mandates the creation of such a committee and the introduction of a robust whistleblowing mechanism.
Directors, key managerial personnel and specified employees must recuse themselves from deliberations and decisions involving loans or contracts where they or their related parties have an interest. This requirement extends to any subsequent material changes in loan terms. Banks are also required to maintain and periodically update a comprehensive register of related persons, related parties and loans sanctioned to them, ensuring transparency and regulatory compliance.
Government likely to retain 4% inflation target for RBI
The government is likely to retain the existing 4 per cent inflation target for the Reserve Bank of India when the current mandate comes up for review in March, according to people familiar with the discussions. The RBI currently operates under a flexible inflation targeting framework with a tolerance band of 2–6 per cent, with 4 per cent as the mid-point.
Officials indicated that the framework, in place since 2016, has been effective in anchoring inflation expectations and managing price volatility, including during periods of global supply shocks triggered by geopolitical developments. Based on convention, the inflation target is reviewed every five years, and the finance ministry has sought feedback from the central bank as part of the process.
The RBI is understood to have favoured maintaining the status quo following internal deliberations and consultations with stakeholders. India’s inflation rate rose in November from a record low in the previous month but remained well below the 4 per cent target, reinforcing confidence in the existing framework. The inflation target plays a central role in guiding the RBI’s monetary policy decisions and interest rate actions over the medium term.
RBI proposes 75% cap on banks’ dividend payout from net profit
The Reserve Bank of India has proposed capping dividend payouts by banks at 75 per cent of net profit, tightening prudential norms around capital conservation and profit distribution. The proposal forms part of the draft RBI (Commercial Banks – Prudential Norms on Declaration of Dividend and Remittance of Profits) Directions, 2026, on which comments have been invited until February 5.
Under the draft norms, banks incorporated in India may declare dividends, including interim dividends, up to the prescribed limits, but the aggregate payout cannot exceed 75 per cent of profit after tax for the relevant period. Dividend on perpetual non-cumulative preference shares has been excluded from the definition. The RBI has proposed a higher cap of 80 per cent of profit after tax for regional rural banks and local area banks.
The central bank has also emphasised that boards must consider long-term growth plans and capital adequacy before approving dividend proposals. Foreign banks operating in India in branch mode must have positive profit after tax to remit profits to their head offices. The RBI has reserved the right to restrict dividend payouts in cases of regulatory non-compliance.
KYC lapses and update backlog weaken banks’ fraud defences: RBI
The Reserve Bank of India (RBI) has flagged growing lapses in know-your-customer (KYC) compliance as a key vulnerability in banks’ defences against fraud and financial exclusion, particularly in rural and semi-urban areas. The central bank has asked lenders to urgently clear the backlog in periodic KYC updates and warned against the routine or mechanical rejection of KYC and account-related applications.
In its latest assessment, the RBI said banks should organise special camps and launch intensive campaigns to accelerate KYC updates, especially at smaller branches. It cautioned that onboarding and KYC-updation requests must not be rejected without due consideration and that reasons for rejection should be properly documented. The regulator noted that it had itself supported a nationwide re-KYC drive at the gram panchayat level between July and October 2025.
The RBI said weak KYC controls not only raise fraud risks but also undermine access to formal finance. It also flagged mis-selling as a persistent conduct risk and said fresh guidelines would be issued. Highlighting the growing threat from cyber and operational incidents, the RBI said it is working with other authorities to curb digital fraud, supported by technology initiatives such as MuleHunter.ai and an AI-driven digital payments intelligence platform.
Bank profits rise for seventh year as bad loans hit multi-year low: RBI
The Indian banking sector remained resilient in 2024-25, recording profit growth for the seventh consecutive year alongside a further improvement in asset quality, the Reserve Bank of India said in its Report on Trend and Progress of Banking in India. While profitability stayed strong, the pace of growth moderated amid rising funding and operating costs.
The RBI said the banking system’s balance sheet expanded 11.2 per cent during the year to Rs. 312.2 lakh crore, with deposits and loans growing broadly in tandem at 11.1 per cent and 11.5 per cent, respectively. Credit growth continued to be largely funded through core deposits, with borrowings rising at a slower 7 per cent. Investments increased 9.2 per cent.
Net profit rose 14.7 per cent to Rs. 4,01,180 crore. Return on assets improved to 1.4 per cent, while return on equity remained stable at 13.5 per cent. However, net interest margins narrowed to 3.1 per cent from 3.3 per cent, reflecting higher deposit costs. Asset quality strengthened further, with gross NPAs declining to 2.2 per cent and net NPAs to 0.5 per cent, marking a multi-year low.
RBI steps up scrutiny of complex bank–NBFC linkages
The Reserve Bank of India has sharpened its focus on the growing interconnectedness between banks and non-banking financial companies (NBFCs), warning that tighter linkages could amplify financial shocks in an uncertain global environment. In its latest banking trends report, the RBI said monitoring bank–NBFC linkages has become central to its financial stability framework.
The regulator noted that non-banks are playing an increasingly important role in credit intermediation, while their relationships with banks have become more complex. As these links deepen, the RBI said, maintaining stability will depend on robust supervision, effective macroprudential tools and enhanced oversight of interconnected exposures, rather than only tracking headline growth indicators.
Funding dependence was identified as a key risk channel, with NBFCs relying heavily on bank credit. Stress in one segment could therefore quickly spill over into the other. To address this, the RBI had increased risk weights on banks’ exposures to NBFCs in November 2023 to curb excessive concentration. Although some of these were partially rolled back for highly rated NBFCs in February 2025, the central bank said it would continue to actively monitor concentration risks and manage them as part of its broader financial stability toolkit.
