The Reserve Bank of India (RBI) on Monday announced revisions to its October proposals on related-party transactions involving banks and non-banking financial companies (NBFCs), incorporating several suggestions made by industry stakeholders.
In October, the central bank had proposed tighter rules governing lending to related or connected counterparties, including entities linked to a lender through ownership, control, or influence over lending decisions. The RBI had cautioned that such relationships could be detrimental to the interests of banks and other stakeholders, noting that related parties may extend beyond entities covered under existing statutory or regulatory restrictions.
Existing transactions allowed to continue
In its latest update, the RBI said stakeholders had requested that existing related-party transactions that do not comply with the new framework be allowed to continue until their contractual maturity, without imposing a mandatory one-year run-off period.
Accepting this request, the RBI clarified that all existing non-compliant transactions may continue until there is any enhancement, renewal, repricing, or modification of terms and conditions.
Changes to definition of related party
The regulator also revised aspects of its proposed nine-point definition of a related party, following industry feedback that the scope was excessively broad.
Earlier, the definition included entities where a related person or their relative was a partner, director, promoter, key managerial personnel, or a shareholder holding more than 10% equity or ₹5 crore of paid-up capital, whichever was lower.
The RBI said stakeholder comments highlighted that relatives of related persons were already covered under existing provisions. As a result, the central bank:
- Removed references to relatives from the definition of related party
- Eliminated the ₹5 crore equity threshold
However, the RBI rejected the industry’s request to align its definition of related party with the framework prescribed by the Securities and Exchange Board of India (SEBI) under LODR norms, stating that the regulatory objectives of the two frameworks differ.
