Banking And Finance Updates August 2026

1.  RBI Draft Amendments: Dematerialisation and Minimum Ticket Size Requirements for Securitisation Notes

Introduction

On July 27, 2026, the Reserve Bank of India (“RBI”) issued four draft amendment directio-ns pertaining to Commercial Banks, Small Finance Banks, Non-Banking Financial Companies (“NBFCs”) and All India Finan-cial Institutions (“AIFIs”), proposing changes to the respective Securitisation Transactions Directions, 2025 governing each category of regulated entity. The proposed amendments seek to improve efficiency, liquidity and transp-arency in the issuance and subsequent transfer of Securitisation Notes (“SNs”). The Directi-ons are presently at the draft stage and open for stakeholder comments until August 27, 2026. If finalised, the proposed amendments are scheduled to come into effect from October 1, 2026.

Understanding Securitisation

Securitisation is a process by which a bank, NBFC or financial institution (the “originator”) pools together a set of its loan receivables, such as housing loans, vehicle loans or other retail or corporate credit, and transfers the pool to a Special Purpose Entity (“SPE”) set up specifically for the transaction. The SPE funds the acquisition of the pool through the issuance of debt instruments, referred to as Securitisation Notes (“SNs”), to investors.

Investors in SNs are, in effect, acquiring rights to receive payments generated by the under-lying pool of loans as the original borrowers repay principal and interest over time. Securitisation enables originators to convert relatively illiquid loan assets into tradable instruments, thereby providing liquidity and potentially creating additional balance-sheet capacity for lending, while giving investors exposure to a pool of credit receivables, subject to the applicable regulatory framework.

The draft directions seek to amend the regulations governing the manner in which originators transfer loan pools to SPEs, which in turn fund such acquisitions through the issuance of SNs to investors, as currently provided under the Securitisation Transactions Directions, 2025 applicable to the respective category of regulated entity.

Mandatory Dematerialisation of Securitisation Notes

A key proposal under the draft amendments is that Securitisation Notes must be issued, held and transferred only in dematerialised form, thereby eliminating issuance and transfer in physical form.

This change is intended to bring greater opera-tional efficiency and transparency to the securitisation market while aligning SNs with the broader trend towards digital holding and transfer of financial instruments.

Minimum Investment Size of ₹1 Crore

The draft amendments also retain the minim-um investment size of ₹1 crore per investor. Importantly, this requirement applies not only at the time of the original issuance but also to every subsequent transfer of the SN. The RBI has clarified that the ticket size refers to the investment made by a single investor.

To operationalise this requirement on an ongoing basis, the agreement between the originator and the SPE must include a clause requiring the SPE to ensure continued compliance with the minimum investment-size requirement throughout the life of the instrum-ent, including at the time of each subsequent transfer. This is particularly relevant for trans-actions where SNs may subsequently be transf-erred in the secondary market, as it seeks to prevent transfers resulting in holdings falling below the prescribed threshold.

Revised Test for a Public Offer

The draft directions further seek to align RBI’s definition of an “offer to the public” of Securi-tisation Notes with the corresponding framew-ork under the Securities and Exchange Board of India (“SEBI”).

Under the draft, an offer of SNs would be deemed to have been made to the public where it is made to a number of persons meeting or exceeding the threshold prescribed under Regulation 21 of the SEBI (Issue and Listing of Securitised Debt Instruments and Security Receipts) Regulations, 2008, as amended from time to time.

This proposed alignment would link the RBI framework governing public offers of SNs with the threshold prescribed under the applicable SEBI regulations, thereby ensuring greater consistency between the RBI and SEBI regula-tory frameworks for securitised debt instruments.

Key Takeaways for Market Participants

The proposed extension of a uniform demat-erialisation and minimum investment-size regime across commercial banks, small finance banks, NBFCs and AIFIs reflects RBI’s continuing effort to harmonise the regulatory treatment of similar market instruments, irres-pective of the category of regulated entity undertaking the securitisation transaction.

Market participants, particularly originators and arrangers involved in structuring securitis-ation transactions during the interim period, should take note of the proposed October 1, 2026 effective date and factor the same into their transaction timelines. Transactions that are currently under discussion or expected to be structured around the proposed commence-ment date may require additional time to assess and incorporate the proposed regulatory requi-rements, including dematerialisation of SNs, compliance with the minimum investment-size requirement upon subsequent transfers, and the necessary contractual obligations to be incorporated into transaction documentation.

As the amendments remain at the draft stage, stakeholders should closely monitor the outcome of the consultation process and any modifications that may be introduced before the RBI issues the final directions.

1.  RBI’s New Derivative Framework: Key Changes, Challenges and Opportunities

Introduction                                                                             

On August 7, 2026, the Reserve Bank of India (“RBI”) released the draft Credit Valuation Adjustment (CVA) Framework Directions, 2026, proposing a significant overhaul of the framework governing the capital treatment of counterparty credit risk arising from deriva-tives transactions. The primary objective of the proposed framework is to ensure that banks maintain adequate capital against potential losses arising from deterioration in the credit-worthiness or default of their derivatives counterparties.

Understanding CVA and Counterparty Credit Risk

Whenever a bank enters into a derivatives contract, there is a risk that the counterparty may default or become insolvent before the transaction is settled. This gives rise to counterparty credit risk and can expose the bank to potential financial losses. Credit Valuation Adjustment (“CVA”) seeks to capture the risk of losses arising from changes in the creditworthiness of a derivatives counte-rparty and, consequently, forms an important component of the regulatory capital frame-work for derivatives exposures.

Robust regulatory requirements are therefore essential to ensure that banks maintain adequ-ate capital against such exposures and, indirectly, safeguard the interests of depositors and account holders. The existing methodo-logy dates back to 2011 and is based on the Basel standards applicable at the time. The proposed framework seeks to align India’s regulatory approach with the Basel Committee on Banking Supervision’s updated Basel III standards.

The draft framework will apply to commercial banks, other than Small Finance Banks, Payments Banks and Local Area Banks. It represents a significant reform in the manner in which banks calculate capital requirements for risks arising from derivatives. The proposed framework aims to strengthen the capital framework, improve the measurement of coun-terparty exposures and enhance the resilience of the banking sector.

How Will Banks Be Affected?

1.  Higher Capital Costs for Riskier Counter-parties

Under the proposed framework, capital requir-ements will be more closely linked to the credit quality and nature of the counterparty. The draft framework, for instance, provides for a 5% risk weight for certain higher-quality counterparties, compared with 12% for weaker-credit-quality or unrated counterparties in the financial sector.

This means that derivatives transactions with stronger, investment-grade counterparties may attract relatively lower capital requirements, while transactions with weaker or unrated cou-nterparties may become comparatively more capital-intensive. Banks may therefore need to factor the counterparty’s credit quality and sector into the economics and pricing of derivatives transactions more closely than before.

The proposed approach could consequently increase the cost of transactions involving counterparties with weaker credit profiles and may incentivise banks to place greater emphasis on counterparty selection and credit risk management.

2.  Simplified Approach for Smaller Derivatives Books

The draft framework provides a simplified approach for banks with relatively smaller books of non-centrally cleared derivatives. Where the notional value of a bank’s non-centrally cleared derivatives does not exceed ₹10 lakh crore, the bank may use its counter-party credit risk (“CCR”) charge as the basis for calculating its CVA capital requirement, rather than undertaking the full CVA calculation.

This provides a more proportionate approach for banks whose derivatives activities are below the prescribed threshold, potentially reducing the operational and computational burden associated with the implementation of the new framework.

However, this simplified approach is not unconditional. The RBI may require a bank to apply the full CVA framework where it considers the bank’s CVA risk to be material. Further, banks using the simplified approach would not be permitted to recognise hedges to reduce the resulting CVA capital requirement.

Accordingly, while the simplified approach may reduce compliance costs for banks with smaller derivatives portfolios, banks will need to monitor their derivatives exposures and assess whether they continue to satisfy the conditions for its application.

3.  Stricter Recognition of Hedging Instruments

The draft framework also proposes a more defined approach to the recognition of hedges for regulatory capital purposes. Banks that hedge their counterparty credit exposure may obtain capital relief, but only where the hedge qualifies as an eligible hedge under the proposed framework. Eligible hedges include individual-name credit default swaps (“CDS”) referencing the bank’s counterparty or related parties, as well as index CDS, subject to the conditions prescribed under the framework.

Consequently, a hedge that economically mitigates a bank’s counterparty risk may not necessarily qualify for regulatory capital recognition if it falls outside the categories of eligible hedges specified by the RBI. Banks will therefore need to distinguish between hedges that are effective from an economic risk-management perspective and those that qualify for regulatory capital relief.

Implications for Banks and Derivatives Market Participants

The proposed CVA framework represents a shift towards a more risk-sensitive approach to the capital treatment of derivatives exposures and is intended to bring India's regulatory framework closer to the Basel III standards.

For banks, the proposed changes could have implications for the pricing and structuring of derivatives transactions, counterparty selectio-n, hedging strategies and capital allocation. In particular, transactions involving weaker or unrated counterparties may become relatively more capital-intensive, while banks with small-er non-centrally cleared derivatives portfolios may benefit from the simplified calculation methodology.

Banks may also need to review their existing derivatives and hedging frameworks to determ-ine whether their current risk-management practices and hedging instruments would qualify for regulatory recognition under the proposed regime.

Looking Ahead

The proposed framework is likely to require banks to strengthen their systems, data capabilities and risk-management processes for measuring and monitoring CVA and counter-party credit risk. Banks and other derivatives market participants should therefore assess the potential impact of the draft framework on their existing portfolios and transaction structures.

As the framework remains at the draft stage, stakeholders should monitor the RBI’s consul-tation process and any modifications that may be introduced before the final directions are issued. Early assessment of the proposed requi-rements may help banks identify potential capital, systems and documentation implicati-ons and prepare for the transition to the revised CVA framework.

2.  RBI’s New Recovery Agent Framework for Housing Finance Companies

Introduction

On August 6, 2026, the Reserve Bank of India (“RBI”) issued an amendment to the regula-tory framework governing loan recovery and the engagement of recovery agents by Housing Finance Companies (“HFCs”). The amend-ment seeks to align the conduct requirements applicable to HFCs with the broader framework governing Non-Banking Financial Companies (“NBFCs”), thereby moving towards a more uniform regulatory approach to recovery practices across the two sectors.

The amendment applies to HFCs regulated under the RBI (Housing Finance Companies) Directions, 2025 and modifies Chapter X on the Fair Practices Code, which contains the requirements governing recovery of loan dues and engagement of recovery agents. The changes seek to remove sector-specific differe-nces and bring HFCs within the consolidated conduct framework applicable to NBFCs.

Transition from the Standalone HFC Framework

Under the amendment, sub-section A.15, titled “Guidelines for engaging Recovery Agents”, and paragraph 170 of Chapter X of the RBI (Housing Finance Companies) Directions, 2025 are proposed to be deleted.

In their place, a new sub-section A.15A, titled “Conduct of HFCs in Recovery of Loans and Engagement of Recovery Agents”, has been introduced, along with paragraph 170A. The new provision requires HFCs to comply with the relevant provisions of the RBI (Non-Banking Financial Companies - Responsible Business Conduct) Directions, 2025.

This represents a shift away from a standalone set of HFC-specific requirements towards a common regulatory framework governing the conduct of regulated entities in relation to loan recovery and recovery agents.

Convergence with the NBFC Conduct Framework

Under the new paragraph 170A, HFCs are required to comply with paragraphs 100A to 100Z of Chapter III of the RBI (Non-Banking Financial Companies; Responsible Business Conduct) Directions, 2025. These provisions establish the broader framework governing conduct in the recovery of loan dues and the engagement of recovery agents.

The convergence is intended to ensure that HFCs are subject to the same core standards applicable to the relevant category of NBFCs in matters concerning recovery practices, engagement and supervision of recovery agen-ts, borrower communication and related conduct requirements.

The RBI's broader recovery-agent framework places responsibility on regulated entities for the actions of their recovery agents and requires regulated entities to ensure that recovery practices do not involve intimidation, harassment or other inappropriate conduct. The existing RBI framework, for instance, prohibits practices such as threatening or anonymous calls, inappropriate communic-ations, persistent calls and conduct intended to humiliate borrowers or intrude upon the privacy of their family members.

Transition Period for HFCs

The amendment is proposed to come into effect from October 1, 2026, providing HFCs with a transition period to align their internal frameworks with the revised requirements. During this period, HFCs may need to review and update their recovery-related policies, agreements with recovery agents, monitoring mechanisms and internal codes of conduct to ensure consistency with the requirements incorporated by reference from the NBFC Responsible Business Conduct framework.

The transition period also provides HFCs an opportunity to assess whether their existing recovery processes, borrower communication practices and grievance-redressal mechanisms are aligned with the broader conduct standards that will become applicable under the revised framework.

Key Implications for HFCs

The amendment reflects RBI’s continuing efforts to harmonise and consolidate conduct-related requirements across different categories of regulated entities. By incorporating the NBFC framework into the HFC Directions, the RBI seeks to reduce regulatory divergence and establish greater consistency in the manner in which loan recovery activities and recovery agents are governed.

For HFCs, the change is likely to require a review not only of their formal recovery-agent policies but also of the contractual and operational arrangements through which recovery activities are undertaken. HFCs should accordingly examine their recovery-agent agreements, codes of conduct, training and monitoring mechanisms, borrower comm-unication processes and grievance-redressal systems before the revised framework takes effect.

Conclusion

The amendment marks a further step towards regulatory convergence between HFCs and NBFCs in the area of responsible business conduct and loan recovery. HFCs should utilise the transition period leading up to October 1, 2026 to review their existing recovery frameworks and align their policies, documentation and operational practices with the applicable provisions of the NBFC Responsible Business Conduct Directions, 2025.

As the amendment represents a consolidation of existing recovery-related requirements into a common conduct framework, HFCs should also monitor any consequential changes to the underlying NBFC Responsible Business Conduct Directions and ensure that their compliance frameworks remain aligned with the requirements applicable to them from time to time.

3.  RBI (Urban Co-operative Banks - Interest Rate on Deposits) Second Amendment Directions, 2026: Tighter Disclosure and Uniform Pricing

 Introduction

On July 30, 2026, the Reserve Bank of India (“RBI”) issued the Reserve Bank of India (Urban Co-operative Banks - Interest Rate on Deposits) Second Amendment Directions, 2026 (RBI/2026-27/219, DOR.SOG(SPE).REC .181/13.03.00/2026-27), amending the Reserve Bank of India (Urban Co-operative Banks - Interest Rate on Deposits) Directions, 2025 dated November 28, 2025 (“Principal Directi-ons”). The Amendment Directions have been issued in exercise of the powers conferred under Section 35A read with Section 56 of the Banking Regulation Act, 1949, with the RBI being satisfied that the amendments are necessary and expedient in the public interest.

The amendments introduce enhanced require-ments relating to the disclosure and uniformity of interest rates offered by Urban Co-operative Banks (“UCBs”), particularly in relation to bulk deposits. The changes are intended to strengthen transparency in deposit pricing while ensuring consistency in the rates offered to similarly placed depositors.

Enhanced Transparency in Deposit Rate Disclosure

The Amendment Directions substitute paragraph 6(3) of the Principal Directions and strengthen the transparency framework gove-rning interest rates on deposits.

Under the revised framework, the interest rates payable on deposits, including bulk deposits, must be in accordance with the rate schedule published in advance on the UCB’s website. In respect of bulk deposits, the applicable rates are required to be disclosed on the bank’s website by 10:00 a.m. on each business day, with a grace period of 10 minutes, effectively requiring publication no later than 10:10 a.m. The prescribed disclosure window seeks to ensure that depositors and market participants have timely access to the applicable bulk-depo-sit rates and reduces the scope for rates to be communicated or altered on a discretionary basis after the relevant trading or business day has commenced. The requirement is partic-ularly relevant for UCBs dealing with bulk deposits, where interest rates may have a more significant impact on funding decisions and pricing.

Uniform and Non-Discriminatory Pricing

The Amendment Directions also substitute paragraph 6(2) of the Principal Directions to strengthen the requirement of uniformity in deposit pricing.

UCBs are required to offer the same interest rate across all branches and to all customers for deposits of similar amount accepted on the same date. The revised framework therefore seeks to prevent differential pricing between similarly placed depositors based solely on the branch through which the deposit is placed or the identity of the customer. The requirement brings greater consistency to deposit pricing practices and limits the scope for selective or preferential pricing of otherwise comparable deposits.

Balancing Pricing Flexibility with Transparency

The amendments reflect RBI’s objective of maintaining operational flexibility for UCBs in pricing deposits while strengthening transpar-ency and consistency in the manner in which such rates are disclosed and applied.

The revised framework does not prevent UCBs from responding to changing liquidity and funding conditions. Rather, it seeks to ensure that the flexibility available to banks in determining deposit rates operates within a transparent and non-discriminatory framew-ork. The combination of advance disclosure and uniform pricing is therefore intended to provide depositors with greater clarity regarding the rates applicable to their deposits while ensuring consistency in the treatment of similarly placed customers.

Applicability and Regulatory Context

The Second Amendment Directions apply to Urban Co-operative Banks and will come into effect from October 1, 2026, providing UCBs with a transition period to update their interest-rate disclosure systems, internal pricing policies and branch-level communication mechanisms.

The amendments form part of a broader set of parallel changes issued by the RBI on July 30, 2026 concerning interest rates on deposits across different categories of banks. The corre-sponding amendments cover commercial banks, small finance banks, regional rural banks, payments banks, local area banks and UCBs.

While the broad objective across these amend-ments is greater transparency and consistency in deposit pricing, the detailed provisions differ depending on the category of regulated entity. Accordingly, UCBs should assess the require-ments specifically applicable to them under the UCB Second Amendment Directions, 2026.

Key Implications for UCBs

The revised framework is likely to have practical implications for the manner in which UCBs determine, publish and communicate deposit rates. UCBs should, in particular:

• review their existing interest-rate setting and approval mechanisms;
• ensure that bulk-deposit rates are publis-hed within the prescribed daily disclosure window;
• verify that rates displayed on their websites correspond with the rates actually offered to depositors;
• review branch-level practices to ensure uniformity in rates offered for deposits of similar amounts accepted on the same date; and
• align internal systems and branch commu-nication protocols with the revised requirements before October 1, 2026.

The compliance exercise will therefore extend beyond a review of written policies and may require coordination between treasury, technol-ogy, compliance and branch operations teams.

Conclusion and Way Forward

The UCB Second Amendment Directions, 2026 strengthen the transparency and consistency requirements governing deposit interest rates. In practical terms, a depositor placing a bulk deposit with a UCB should be able to access the applicable rate through the bank’s website within the prescribed disclosure window and should receive the same rate as another customer placing a comparable depo-sit through another branch on the same date, subject to the specific requirements of the revised framework.

For UCBs, the transition period leading up to October 1, 2026 should be used to review and align their website disclosure processes, internal rate-setting workflows, branch-level pricing practices and communication protocols with the amended requirements.

The amendments are likely to enhance transparency in the pricing of deposits while reducing the scope for inconsistent treatment of similarly placed depositors. UCBs should accordingly treat the October 1, 2026 commen-cement date as an important compliance milestone and undertake the necessary oper-ational and policy-level changes in advance

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