RBI Notification on Credit Risk Management for Urban Co-operative Banks – December 11 2025

The Reserve Bank of India issued the Reserve Bank of India (Urban Co-operative Banks – Credit Risk Management) – Amendment Directions, 2025, on December 11, 2025, under reference number RBI/2025-26/146. These amendments modify the original Directions dated November 28, 2025, exercising powers under Sections 21 and 35A read with Section 56 of the Banking Regulation Act, 1949

Key Modifications

The Amendment Directions introduce two primary changes to the existing framework. First, paragraphs 19, 20, and 21 in Chapter V, Section B of the original Directions are deleted. Second, a comprehensive new Chapter VIIIA titled “Maintenance of Cash Credit Accounts, Current Accounts and Overdraft Accounts by Banks” has been added to address transaction account management and credit monitoring concerns.​

Framework for Transaction Accounts

Cash Credit Accounts

Banks may provide cash credit facilities without any restrictions under this Chapter, recognizing that CC accounts are operationally distinct from current or OD accounts due to their nature as working capital facilities linked to borrowers’ current assets.​

Current Accounts and Overdraft Accounts – Below ₹10 Crore Threshold

Banks may maintain current accounts or OD accounts without restrictions for customers where the aggregate exposure of the banking system is less than ₹10 crore. The ‘Banking System’ encompasses Commercial Banks (including Small Finance Banks, Local Area Banks, and Regional Rural Banks, excluding Payments Banks), Urban Co-operative Banks, and Rural Co-operative Banks. ‘Exposure’ refers to the sum of all sanctioned fund-based and non-fund-based credit facilities availed by the borrower from the banking system.​

Current Accounts and Overdraft Accounts – ₹10 Crore and Above

For customers with banking system exposure of ₹10 crore or more, banks may maintain current accounts or OD accounts only if they have either a minimum 10% share in the banking system’s aggregate exposure to the borrower or a minimum 10% share in aggregate fund-based exposure.​

If no bank meets these criteria, or only one bank qualifies, the two banks with the largest exposures may maintain such accounts. Where only one bank has any exposure to the borrower, one additional bank of the customer’s choice may maintain current accounts, subject to a no-objection certificate (NOC) from the bank with existing exposure.​

Banks not meeting eligibility criteria may maintain only collection accounts, defined as current or OD accounts used primarily for cash inflows, with restricted payment capabilities as specified in the Directions.​

Collection Account Operations

Funds credited into collection accounts must be remitted within two working days to a designated CC account, current account, or OD account maintained with any bank in the banking system. Statutory dues such as taxes and dues to the bank maintaining the collection account may be debited before remitting funds. Any overdraft disbursement from a collection OD account must be processed through the designated account only.​

Exemptions

The restrictions do not apply to accounts opened under the Foreign Exchange Management Act, 1999 (FEMA), accounts stipulated under statutes or instructions from financial sector regulators (RBI, SEBI, IRDAI, PFRDA) or government entities, and accounts of entities regulated by financial sector regulators for carrying out regulated activities. Banks must ensure these exempted accounts are used only for permitted purposes, with surplus funds remitted to designated accounts.​

Compliance and Monitoring Requirements

Banks must monitor accounts regularly, at minimum once every half-year, to ensure ongoing compliance. If a bank becomes ineligible to maintain a current or OD account due to exposure threshold breaches or changes in exposure share, it must notify customers within one month and complete account conversion to a collection account or closure within three months.​

All accounts opened under these Directions must be appropriately flagged in the bank’s core banking solution (CBS) for clear identification and effective monitoring. Banks maintaining multiple accounts for a borrower must monitor transactions and cash flows at both borrower and account levels.​

Prohibited Activities and Safeguards

Banks must ensure accountholders use accounts solely for authorized business activities and not as pass-through channels for third-party transactions, except for entities expressly licensed by financial sector regulators. Accounts permitted for third-party transactions must be flagged in CBS. Accountholders not licensed to accept deposits or provide payment services cannot engage in such activities through their accounts.​

Robust monitoring systems must detect prohibited usage, including mechanisms to flag accounts with unusually high transaction volumes, frequent pass-through activities, or inconsistencies between stated business lines and actual transactions. Term loans should preferably be remitted directly to intended beneficiaries rather than routing through borrower accounts.​

Implementation Timeline

These amendments come into force from April 1, 2026. However, banks may choose to implement the amendments in entirety from an earlier date at their discretion.

We have made the summary of the notification for the convenience of readers. We have taken all due care to get the jist of the notification but to get the exact text for the notification and it’s implication we recommend readers to visit the RBI website https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=13220&Mode=0​

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