RBI Eases Reorganisation Norms for Bank Groups, Says Crisil Ratings

The Reserve Bank of India’s final guidelines on financial services activities of commercial banks have eased reorganisation requirements for major bank groups while tightening compliance obligations. Crisil Ratings noted that the streamlined framework reduces the operational disruption initially expected under draft rules issued in 2024.

Greater Flexibility for Overlapping Lending

The guidelines allow bank group entities to continue overlapping lending operations with board approval. This flexibility prevents compulsory restructuring for 12 bank groups that would otherwise have been affected. Banks and their subsidiaries can now retain distinct customer strategies without breaching regulatory norms.

Alignment of Regulations Across Group Entities

While easing reorganisation expectations, the RBI has retained several important restrictions from the draft. These include extending upper-layer scale-based regulations to NBFCs within bank groups, applying bank-level restrictions on loans and advances to these NBFCs, and maintaining a 20 per cent ceiling on group shareholding in asset reconstruction companies.

Impact Assessment by Crisil

Crisil Ratings highlighted that full implementation of the 2024 draft would have required restructuring of 55 per cent of sectoral advances, affecting 2–6 per cent of consolidated portfolios across impacted banks. The final version, however, ensures continuity in operations while mandating stronger compliance through standardised norms for lending entities.

Exam Oriented Facts

• RBI issued final guidelines titled Commercial Banks – Undertaking of Financial Services, 2025.
• Overlapping lending allowed within bank groups with board oversight.
• 20% ceiling on bank group shareholding in ARCs retained.
• Upper-layer NBFC norms must be met by March 31, 2028.

Strengthening Governance and Reducing Arbitrage

The guidelines aim to eliminate regulatory arbitrage by aligning risk norms across banks, NBFCs and housing finance subsidiaries. Most NBFC and HFC subsidiaries already comply with the revised standards, though some associate entities must discontinue activities not permitted for banks. The framework ultimately bolsters stability while ensuring bank groups can operate efficiently within a unified regulatory structure.