RBI Guidelines and Rules for Banks

The Reserve Bank of India (RBI) sets comprehensive guidelines and rules for banks in India to ensure financial stability, transparency, and inclusion. The main regulatory framework is provided by the Banking Regulation Act, 1949 and further detailed through RBI circulars and notifications.

1. Capital and Reserve Requirements

• Cash Reserve Ratio (CRR): Banks must maintain at least 4.5% of their net demand and time liabilities (NDTL) as cash with the RBI. This is maintained on a fortnightly basis, with daily compliance required at 95% of the prescribed level. Defaults attract penalties.

• Statutory Liquidity Ratio (SLR): Banks must also maintain 18% of NDTL in gold, cash, or approved securities. Excess SLR can be used for overnight borrowing from the RBI under the Marginal Standing Facility.

2. Lending and Exposure Limits

• Single Borrower Limit: Lending to a single borrower is capped at 20% of a bank’s capital funds, extendable by 5% with board approval.

• Group Borrower Limit: Lending to a group is limited to 25% of the bank’s eligible capital base.

• Priority Sector Lending: Banks must prioritize lending to sectors like agriculture, micro and small enterprises, education, housing, and weaker sections.

• Restrictions on Loans: There are strict controls on loans to directors, their relatives, and companies where directors have interests, especially for advances above ₹25 lakhs, which require board approval.

3. Governance and Licensing

• New banks must have a minimum paid-up voting equity capital of ₹5 billion and meet promoter holding and listing requirements. The board must have a majority of independent directors, and at least 25% of branches must be in unbanked rural areas.

4. Customer Due Diligence (KYC/AML)

• KYC Norms: Banks must verify the identity and address of customers, obtain PAN for deposits above ₹50,000, and follow strict account-opening procedures to prevent fraud and money laundering.

• Anti-Money Laundering (AML) and Combating Financing of Terrorism (CFT): Banks must monitor transactions, report suspicious activities, and comply with all RBI-issued AML/CFT guidelines.

5. Mobile and Digital Banking

• Only licensed banks with core banking solutions can offer mobile banking. Services are restricted to bank customers and cardholders, and all KYC, AML, and CFT guidelines apply to mobile transactions as well.

6. Other Notable Restrictions

• Banks cannot advance against their own shares or hold shares in companies beyond prescribed limits.

• There are restrictions on granting loans to industries dealing with ozone-depleting substances and advances against sensitive commodities.

• Banks must ensure discipline in current account openings, including declarations about credit facilities with other banks and, where necessary, obtaining no-objection certificates.

7. Customer Service and Transparency

• RBI mandates clear disclosure of service charges, discourages stapling of note packets, and requires banks to sort notes into re-issuable and non-issuable categories.

These guidelines are regularly updated by the RBI to address emerging risks and promote a sound, inclusive, and customer-friendly banking environment in India.