The Reserve Bank of India issued the Reserve Bank of India (Local Area Banks – Responsible Business Conduct) Directions, 2025 on November 28, 2025, with immediate effect. These Directions consolidate and codify regulatory instructions relating to customer service, customer protection, fair conduct, financial inclusion, deposit management, lending practices, and operational responsibilities applicable to all Local Area Banks (LABs). The Directions are issued under the powers conferred by the Banking Regulation Act, 1949, in public interest.
Scope and Definitions
The Directions apply uniformly to all LABs and provide detailed definitions of key terms such as customer, customer-induced and bank-induced transactions, inoperative accounts, unclaimed deposits, consumer credit, microfinance loans, key facts statement, nomination, and safe deposit locker arrangements. These definitions form the basis for consistent implementation across banks.
Institutional Framework and Board Oversight
LABs are required to establish Board-approved policies to ensure sound business conduct and enhanced customer service. These include policies on customer service, safe deposit lockers, settlement of claims, doorstep banking, basic savings bank deposit accounts, service charges, penal charges on loans, and employee conduct and training. The Board or its delegated committee must periodically review critical areas such as unclaimed collateral.
Customer Service in Branches
The Directions prescribe minimum banking hours for public transactions, flexibility in fixing working hours, and provisions for extended business hours for non-cash transactions. LABs must provide adequate public notice for changes in banking hours and ensure compliance with labour and local laws. Transparency and customer convenience are emphasized.
Customer Guidance and Protection
LABs are encouraged to undertake customer awareness initiatives, including display of cautionary messages against fraudulent investment schemes. Banks must design and display educational material to promote informed decision-making and vigilance among customers. Service charges must be reasonable, Board-approved, and structured to avoid penalising low-volume or vulnerable customers.
Financial Inclusion and Accessibility
A major focus is on the Basic Savings Bank Deposit (BSBD) Account, which must be offered without any minimum balance requirement and with free basic facilities such as cash deposits, electronic credits, ATM cards, and a minimum number of withdrawals. LABs may offer additional services on a non-discriminatory basis without altering the BSBD status. Specific compliance with Supreme Court directions and mandatory doorstep banking services for senior citizens and differently-abled persons are also prescribed, with requirements for public disclosure and periodic reporting.
Payment and Remittance Services
During suspension of clearing, LABs may temporarily purchase local cheques and drafts to accommodate customers, subject to due diligence regarding creditworthiness and risk. Special consideration is advised for government and reputed entities.
Deposit Accounts and Other Liabilities
The Directions comprehensively regulate opening and operation of deposit accounts, including detailed provisions for minors’ accounts, guardianship, and independent operation by minors above a specified age. LABs must ensure accounts remain in credit and comply with KYC requirements at all stages.
Inoperative Accounts and Unclaimed Deposits
LABs are required to conduct periodic reviews of accounts with no customer-induced transactions, issue alerts before classifying accounts as inoperative, and actively trace account holders, nominees, or legal heirs. Inoperative accounts must be segregated, closely monitored upon reactivation, and subjected to audit. Activation must be simple, free of charge, and supported by KYC updation through branches, V-CIP, or authorised business correspondents. LABs must display details of unclaimed deposits on their websites with a searchable facility while safeguarding sensitive information.
Safe Deposit Lockers and Safe Custody Articles
Extensive norms govern locker allotment, agreements, rent, infrastructure, security standards, operations, breaking open of lockers, and discharge of contents. LABs must follow transparent allotment processes, maintain detailed records, ensure privacy, and provide alerts for locker operations. Board-approved SOPs are mandatory for all scenarios including loss of keys, non-payment of rent, attachment by authorities, and long-term inoperation.
Liability and Compensation
LABs owe a duty of care for locker contents and must adopt a Board-approved compensation policy. While LABs are not liable for losses due to natural calamities or customer negligence, they are liable up to one hundred times the annual locker rent for losses arising from theft, fire, burglary, building collapse, or employee fraud. Branch insurance policies are mandatory, and customers must be informed that locker contents are not insured by the bank.
Nomination Facility
In line with amendments to the Banking Regulation Act and the Banking Companies (Nomination) Rules, 2025, LABs must offer and actively promote nomination facilities for deposit accounts, lockers, and safe custody articles. Customers may opt out without restriction. Procedures for registration, acknowledgement, disclosure in passbooks, and public awareness are clearly laid down.
Settlement of Claims of Deceased Customers
The Directions prescribe simplified, time-bound procedures for settlement of claims relating to deceased depositors, locker hirers, and safe custody customers. Clear distinctions are made between accounts with nomination or survivorship clauses and those without. Threshold-based documentation requirements are specified to minimise hardship to legal heirs, while ensuring due diligence and legal compliance.
Annexures
The Directions include multiple annexures providing standardised forms for inventory, claim settlement, indemnity bonds, affidavits, locker inventories, and the Key Facts Statement to ensure uniformity and transparency in implementation.
RESERVE BANK OF INDIA
RBI/DOR/2025-26/244
DOR.MCS.REC.No.163/01-01-035/2025-26 | Dated: November 28, 2025
Reserve Bank of India (Local Area Banks – Responsible Business Conduct) Directions, 2025
Introduction
Customer service holds great significance in the financial services sector. The Reserve Bank of India has, over the years, issued various instructions with a focus on enhancing the level of customer service and ensuring fair conduct towards customers by banks. These directions are issued with an aim to consolidate the various regulatory instructions on customer service and conduct aspects issued by the Reserve Bank of India to Local Area Banks at one place.
Accordingly, in exercise of the powers conferred by Sections 21, 35A, 45ZC(3) and 45ZE(4) of Banking Regulation Act, 1949, and all other provisions / laws enabling the Reserve Bank of India (hereinafter called the ‘Reserve Bank’) in this regard, the Reserve Bank 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 (Local Area Banks – Responsible Business Conduct) Directions, 2025.
2. These Directions shall come into effect immediately upon issuance, unless indicated otherwise.
B. Applicability
3. These Directions shall be applicable to all Local Area Banks (hereinafter collectively referred to as ‘LABs’ and individually as an ‘LAB’).
Read Full text of the Notification: https://rbidocs.rbi.org.in/rdocs/notification/PDFs/244MD.PDF
