The Reserve Bank of India (RBI), exercising powers under Sections 26A and 35A of the Banking Regulation Act, 1949, issued the Reserve Bank of India (Local Area Banks – Miscellaneous) Directions, 2025 with immediate effect, except for provisions relating to investments in Alternative Investment Funds (AIFs), which come into force from January 1, 2026 or an earlier date as decided by individual Local Area Banks. These Directions apply exclusively to Local Area Banks and consolidate various regulatory, operational, governance, and compliance-related instructions.
Preliminary Provisions
The Directions define key terms, including references to the Banking Regulation Act, 1949, and the Deposit Insurance and Credit Guarantee Corporation (DICGC). Undefined expressions are to be interpreted as per applicable RBI Acts, statutory provisions, or commercial usage.
Role of the Board
Local Area Banks are required to frame separate Board-approved policies covering investments in AIFs, donations, staff certifications for specialised functions, and mandatory leave requirements for sensitive positions. The Board must periodically review and update the mandatory leave policy.
Depositor Education and Awareness Fund (DEA Fund)
A significant portion of the Directions deals with the management of unclaimed deposits under the Depositor Education and Awareness Fund Scheme, 2014.
Banks must transfer credit balances in deposit accounts that have remained unclaimed or inoperative for ten years or more, including accrued interest, to the DEA Fund maintained with RBI. Such transfers are to be made monthly through the e-Kuber system, following specified timelines and procedures.
When a depositor or legal heir claims an amount that has been transferred to the Fund, the bank must first repay the claimant and then seek reimbursement from the Fund. Interest on eligible deposits is payable at RBI-prescribed rates, which have changed over time. Detailed procedures are laid down for claims involving banks under liquidation, including cases where deposits are covered or not covered by DICGC insurance.
Banks must register on the e-Kuber system, designate authorised signatories, and comply with detailed operational procedures for transfers, claims, error rectification, and internal controls. Monthly, half-yearly, and annual returns—including Forms I, II, III, and statutory audit certificates—must be submitted to RBI within prescribed timelines. The Directions also mandate disclosures in financial statements, audit requirements, permanent preservation of records relating to unclaimed deposits, and furnishing of information to RBI when called upon.
Investment in Alternative Investment Funds (AIFs)
The Directions prescribe limits and prudential requirements for investments by Local Area Banks in AIFs. A bank may not contribute more than 10 per cent of an AIF scheme’s corpus, and aggregate contributions by all regulated entities may not exceed 20 per cent. Where a bank’s investment exceeds specified thresholds and the AIF has downstream exposure to a debtor company of the bank, stringent provisioning or capital deduction requirements apply.
Certain exemptions may be notified by RBI in consultation with the Government of India. Transitional arrangements allow existing investments and commitments made before the effective date to be governed either by earlier circulars or by these Directions, as specified.
Services and Market Operations
Banks are advised to organise camps and intensive campaigns for periodic updation of Know Your Customer (KYC) details, especially in rural and semi-urban areas and branches with large KYC pendency, and to facilitate account activation with an empathetic approach.
Regulatory Compliance and Legal Matters
Banks must ensure prompt circulation and implementation of RBI instructions, timely attendance in courts, and avoidance of delays in filing appeals or affidavits. Provisions are included regarding preservation of original records involved in legal proceedings and compliance with court directives, including restrictions relating to defaulted companies identified by the Patna High Court.
The Directions clarify that an earlier RBI circular set aside by the Supreme Court cannot be cited, while reiterating continued obligations under KYC, AML, CFT, FEMA, and related laws. Banks are also required to register under FATCA and obtain a Global Intermediary Identification Number (GIIN), if not already registered.
Financial Conduct and Prohibited Activities
The Directions regulate donations and charitable contributions, capping them at one per cent of the previous year’s published profits, subject to specified exclusions and limits for loss-making banks. Detailed procedures are prescribed for remitting donations to the Prime Minister’s National Relief Fund.
Banks are prohibited from accepting deposits at the instance of private financiers or unincorporated bodies, associating with prize chit schemes, or engaging in lottery-related activities. Clear instructions are provided to ensure compliance with statutory prohibitions.
Taxation and Accounting Matters
Guidance is provided on handling demands for information by Income Tax authorities, clarifying the scope of inspections and requisitions under the Income-tax Act, 1961, and the appropriate course of action where jurisdictional limits are exceeded.
Human Resource and Capacity Building
Banks must identify specialised functional areas requiring mandatory staff certification, including treasury, risk management, accounting, credit management, and marketing of third-party products. Board-approved policies must specify recognised courses and certification requirements.
Operational and Administrative Matters
Mandatory leave requirements apply to employees in sensitive positions, requiring them to take uninterrupted leave of at least ten working days annually without prior notice, with restricted access to work resources during such leave. Banks must also obtain statements of immovable property from officer staff in line with applicable conduct regulations.
Repeal and Interpretation
All prior directions, instructions, and guidelines applicable to Local Area Banks on matters covered by these Directions stand repealed, subject to savings for actions already taken. The Directions operate in addition to other applicable laws, and RBI’s interpretation of their provisions is final and binding.
RESERVE BANK OF INDIA
RBI/DOR/2025-26/246
DOR.SOG(SPE).REC.No.165/13-04-001/2025-26 | Dated: November 28, 2025
Reserve Bank of India (Local Area Banks – Miscellaneous) Directions, 2025
In exercise of the powers conferred by Section26A and Section 35A, of the Banking Regulation Act, 1949, and all other provisions / laws enabling the Reserve Bank of India (‘RBI’) in this regard, 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 (Local Area Banks – Miscellaneous) Directions, 2025.
2. These Directions shall come into force with immediate effect, except for instructions pertaining to investments in Alternative Investment Funds (AIFs) contained in paragraph 33 to paragraph 38 of these Directions which shall come into force from January 1, 2026, or from any earlier date as decided by a Local Area Bank as per its internal policy.
B. Applicability
3. These Directions shall be applicable to Local Area Banks (hereinafter collectively referred to as ‘banks’ and individually as a ‘bank’).
Read Full text of the Notification: https://rbidocs.rbi.org.in/rdocs/notification/PDFs/246MD.PDF
