In the absence of this, 12 bank groups in India would have had to restructure their lending businesses.
FinTech BizNews Service
Mumbai, 10 December 2025: The Reserve Bank of India’s (RBI) final guidelines on the financial services businesses of commercial banks provide flexibility with respect to overlapping lending activities within major bank groups . In the absence of this, 12 bank groups in India would have had to restructure their lending businesses. Earlier, draft guidelines released in October 2024 had proposed that only one bank group entity could carry out a specific form of business, with no overlap in lending activities between the bank and its group entities. To be sure, the RBI has retained several proposals from the draft in the final guidelines. These include the applicability of upper-layer scale-based regulations for non-banking financial companies (NBFCs), regulatory restrictions on loans and advances applicable to banks, to NBFCs within bank groups, and the 20% ceiling on a bank group’s holding in an asset reconstruction company (ARC). Overall, the final guidelines aim to eliminate any regulatory arbitrage by aligning regulations across bank group entities, thus contributing to structural strengthening, while providing flexibility in business conduct.
Says Subha Sri Narayanan, Director, Crisil Ratings, “If the draft guidelines had been implemented in toto, 12 bank groups, accounting for 55% of sectoral advances, would have needed restructuring of their lending businesses. This would have impacted 2-6% of consolidated advances of these individual banks5 . However, with the final guidelines permitting bank group entities to maintain overlapping lending businesses, subject to Board approval, there will be no disruption to their operations. More significantly, banks and their group entities can continue to leverage their respective strengths and serve distinct customer segments in a cost-effective manner.” While the final guidelines have provided flexibility on the conduct of forms of business for bank groups, they have tightened the compliance requirements for entities within bank groups engaged in lending.
Of the 26 bank group entities currently operating lending businesses, only two are designated as upper-layer NBFCs. The rest must comply with the norms for upper-layer NBFCs (except listing requirement) by March 31, 2028. The guidelines have also applied restrictions on specific loan segments for bank group entities, akin to those for banks, to align risks across entities and curb regulatory arbitrage.
Most of the NBFC and HFC subsidiaries of domestic banks are already compliant. However, if an associate lending entity is undertaking activities not permitted in the bank, it must be discontinued. The final guidelines have also prescribed ceilings, largely carried forward from the draft, for various bank investments.
Says Vani Ojasvi, Associate Director, Crisil Ratings, “One notable restriction in the final guidelines is the 20% ceiling on bank group shareholding in an ARC.
There are currently 13 ARCs in which one or more banks hold stakes. In all but two of these, shareholding by any single bank is less than 20%. Wherever the shareholding exceeds this prescribed limit, banks will have to partially divest by March 2028. Any material change in ownership, as and when it happens, would be appropriately factored by Crisil Ratings into the credit profile assessment of such entities.” In sum, while the final directions have eased re-organisation requirements and potential operational disruption for many bank groups, they do enhance regulatory compliance requirements for them.
