The Reserve Bank of India has issued the Local Area Banks Credit Risk Management Second Amendment Directions 2026 to strengthen risk assessment practices for Local Area Banks. Effective July 1, 2026, the amendment introduces a new Chapter IIA on Credit Risk Evaluation, requiring banks to incorporate the potential impact of natural calamities while assessing borrower creditworthiness. This aligns credit appraisal with evolving risks arising from climate events and economic disruptions. The direction complements broader RBI reforms on stressed asset resolution and responsible business conduct, ensuring that lending decisions are forward-looking and risk-sensitive. By mandating consideration of calamity-related risks, the amendment aims to improve resilience of both borrowers and banks, reduce future defaults, and enhance prudential standards. The key takeaway is that Local Area Banks must now integrate disaster-risk assessment into their credit evaluation frameworks as part of regulatory compliance.
Reserve Bank of India
RBI/2026-27/55
DOR.STR.REC.44/21-04-048/2025-26 | Dated: April 29, 2026
Reserve Bank of India (Local Area Banks – Credit Risk Management) Second Amendment Directions, 2026
Please refer to Reserve Bank of India (Local Area Banks – Resolution of Stressed Assets) Amendment Directions, 2026 dated April 29, 2026.
2. Consequent to the aforesaid Amendment Directions, in exercise of the powers conferred by the sections 21 and 35A of the Banking Regulation Act, 1949 and all other 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 Amendment Directions hereinafter specified.
3. These Amendment Directions modify the Directions as under:
i. Chapter IIA shall be inserted as under:
Chapter IIA: Credit Risk Evaluation
5A. Credit assessments carried out by a bank shall suitably factor in the possible impact of calamities on borrowers who may be impacted by such events.
4. The above amendment shall come into force with effect from July 1, 2026.
(Vaibhav Chaturvedi)
Chief General Manager
