The Reserve Bank of India has issued the Small Finance Banks – Know Your Customer (KYC) Directions, 2025 to strengthen Anti-Money Laundering (AML) and Countering the Financing of Terrorism (CFT) measures. In alignment with international standards set by the Financial Action Task Force (FATF), these directions aim to prevent banks from being misused for money laundering or terrorist financing and safeguard the integrity of India’s financial system. Applicable to all Small Finance Banks and their majority-owned subsidiaries abroad (subject to local law), the guidelines require banks to adopt rigorous customer identification procedures and transaction monitoring. Where host-country regulations differ, the stricter standard applies. The directions come into effect upon publication on the RBI website and cover all branches except certain “small accounts.” Exercising powers under the Banking Regulation Act, the Payment and Settlement Systems Act, FEMA, and PMLA rules, the RBI emphasizes that these measures are essential for public interest, financial stability, and compliance with both national and international AML/CFT obligations.
RESERVE BANK OF INDIA
RBI/DOR/2025-26/200
DOR.AML.REC.No.119/14.01.007/2025-26 | Dated: November 28, 2025
Reserve Bank of India (Small Finance Banks – Know Your Customer) Directions, 2025
Introduction
In order to prevent banks and other financial institutions from being used as a channel for Money Laundering (ML)/ Terrorist Financing (TF) and to ensure the integrity and stability of the financial system, efforts are continuously being made both internationally and nationally, by way of prescribing various rules and regulations. Internationally, the Financial Action Task Force (FATF), which is an inter-governmental body established in 1989 by the Ministers of its member jurisdictions, sets standards and promotes effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system. India, as a member of FATF, is committed to upholding measures to protect the integrity of the international financial system.
In India, the Prevention of Money-Laundering Act, 2002, and the Prevention of Money-Laundering (Maintenance of Records) Rules, 2005, form the legal framework on Anti-Money Laundering (AML) and Countering the Financing of Terrorism (CFT). The provisions of the PML Act, 2002 and the PML Rules, 2005, as amended from time to time by the Government of India, require Regulated Entities (REs) to follow certain customer identification procedures while undertaking a transaction either by establishing an account-based relationship or otherwise, and to monitor their transactions.
Accordingly, in exercise of the powers conferred by sections 35A of the Banking Regulation Act, 1949, section 10(2) read with section 18 of Payment and Settlement Systems Act 2007 (Act 51 of 2007), section 11(1) of the Foreign Exchange Management Act, 1999, Rule 9(14) of the Prevention of Money-Laundering (Maintenance of Records) Rules, 2005, and all other laws enabling the Reserve Bank in this regard, the RBI being satisfied that it is necessary and expedient in the public interest so to do, hereby issues the Directions hereinafter specified.
Chapter I – Preliminary
A. Short Title and Commencement.
1. These Directions shall be called the Reserve Bank of India (Small Finance Bank – Know Your Customer) Directions, 2025.
2. These Directions shall come into effect on the day the RBI places them on its official website.
B. Applicability
3. These Directions shall be applicable to Small Finance Banks (hereinafter collectively referred to as ‘banks’ and individually as a ‘bank’).
4. These directions shall also apply to those branches and majority-owned subsidiaries of the bank which are located abroad, to the extent they are not contradictory to the local laws in the host country, provided that:
i. where applicable laws and regulations prohibit implementation of these guidelines, the bank shall bring the same to the notice of the RBI. The RBI may advise the bank to take further necessary action, including application of additional measures to manage the ML / TF risks.
ii. in case there is a variance in KYC / AML standards prescribed by the RBI and the host country regulators, branches / subsidiaries of the bank shall adopt the more stringent regulation of the two.
Provided that this rule shall not apply to ‘small accounts’ referred to in paragraph 28 of Chapter VI.
Read Full text of the Notification: https://rbidocs.rbi.org.in/rdocs/notification/PDFs/200MD.pdf
