Reserve Bank of India : From 'One-size-fit-All' to Differentiated Guidances

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After withdrawing Master Direction on AML/CFT by end 2025, Reserve bank of India has come up with individual Master Direction for each segment it manages.


1. Asset Reconstruction Companies (ARCs)

·         Definition: Specialized financial institutions licensed by the Reserve Bank of India (RBI) under Section 3 of the SARFAESI Act, 2002 to acquire Non-Performing Assets (NPAs) or bad loans from banks and financial institutions.

·         Core Functions:

o   Purchase stressed assets at a mutually agreed negotiable price to clean bank balance sheets.

o   Issue Security Receipts (SRs) to Qualified Buyers (QBs).

o   Undertake recovery and resolution strategies such as debt restructuring, change in management, property sales, or insolvency resolutions.

·         Key Regulations: Governed by RBI directions requiring a minimum Net Owned Fund (NOF) of ₹300 crore and a Capital Adequacy Ratio of at least 15%


Reserve Bank of India (Asset Reconstruction Companies – Know Your Customer) Directions, 2025 (Updated as on December 29, 2025)

https://rbi.org.in/scripts/NotificationUser.aspx?Mode=0&Id=12927


2. All India Financial Institutions (AIFIs)

·         Definition: Specialized financial intermediaries that provide long-term credit and developmental finance to various sectors of the economy.

·         Regulator: Regulated and supervised directly by the RBI.

·         Key AIFIs in India:

o   NABARD (National Bank for Agriculture and Rural Development) – Refinance institution for rural/agricultural development.

o   SIDBI (Small Industries Development Bank of India) – Refinance and development for MSMEs.

o   NHB (National Housing Bank) – Promotion and financing of housing finance institutions.

o   EXIM Bank (Export-Import Bank of India) – Financing for foreign trade and exports.

o   NaBFID (National Bank for Financing Infrastructure and Development) – Long-term infrastructure financing.

o   IFCI Ltd. (Industrial Finance Corporation of India)

Reserve Bank of India (All India Financial Institutions – Know Your Customer) Directions, 2025 (Updated as on December 29, 2025)

https://rbi.org.in/scripts/NotificationUser.aspx?Mode=0&Id=12969

3. Non-Banking Financial Companies (NBFCs)

·         Definition: Financial establishments that provide banking and credit-related services (such as loans, investments, and leasing) without holding a formal commercial banking license.

·         Key Distinctions:

o   Cannot accept demand deposits (savings and current account deposits).

o   Cannot issue cheques drawn on themselves.

o   Depositors do not have deposit insurance coverage via DICGC.

·         Major Categories: NBFC-Investment and Credit Companies (NBFC-ICC), NBFC-Micro Finance Institutions (NBFC-MFI), Housing Finance Companies (HFCs), and Infrastructure Finance Companies (IFCs)

Reserve Bank of India (Non-Banking Financial Companies – Know Your Customer) Directions, 2025 (Updated as on December 29, 2025)

https://rbi.org.in/scripts/NotificationUser.aspx?Mode=0&Id=12943

4. Payment System Providers (PSPs / PSOs)

·         Definition: Entities authorized by the RBI under the Payment and Settlement Systems (PSS) Act, 2007 to set up, manage, and operate a domestic or cross-border payment system. [1, 2]

·         Examples & Classifications:

o   Central Payment Networks / Infrastructure: National Payments Corporation of India (NPCI) for UPI, IMPS, and Aadhaar-enabled payment systems; Central Clearing Corporation of India Ltd. (CCIL).

o   Card Networks: Visa, Mastercard, RuPay, American Express, and Diners Club.

o   Bill Payment Central Units: NPCI Bharat BillPay Ltd. (NBBL) for BBPS.

o   Prepaid Payment Instrument (PPI) & Wallet Operators: Authorized digital wallet and card providers (e.g., Amazon Pay, MobiKwik)


5. Payment System Participants

·         Definition: Banks, financial institutions, or non-bank entities that utilize or participate in an authorized payment system to route, send, clear, or receive payment instructions.

·         Roles & Examples:

o   Scheduled Commercial Banks: Act as participants in RBI-operated systems (RTGS, NEFT) and third-party networks (UPI, card rails).

o   Customer / Biller Operating Units (COUs / BOUs): Banks and non-bank Payment Aggregators (PAs) acting within ecosystems like Bharat BillPay (BBPS) or e-commerce payment gateways to interface directly with end-users or merchants.

o   Agent Institutions: Physical or digital touchpoints certified to collect payments or execute transactions on behalf of primary participants

 

Master Direction in instructions to Payment System Providers and Payment System Participants

https://rbi.org.in/scripts/NotificationUser.aspx?Mode=0&Id=13171


6. Regional Rural Banks (RRBs)

·         Definition: Government-sponsored commercial banks created in 1975 to provide concessional credit to agriculture, artisans, and small businesses in rural regions.

·         Ownership: Jointly owned by the Central Government (50%), State Government (15%), and a Sponsor Commercial Bank (35%) (e.g., Kerala Gramin Bank operating locally).

·         Regulation: Regulated by the RBI and supervised by NABARD.

Reserve Bank of India (Regional Rural Banks – Know Your Customer) Directions, 2025 (Updated as on September 18, 2026)

https://rbi.org.in/scripts/NotificationUser.aspx?Mode=0&Id=13040

7. Rural Cooperative Banks

·         Definition: Financial entities organized on cooperative principles to serve agriculture, rural development, and village industries.

·         Structure: Follows a multi-tier framework:

o   State Co-operative Banks (StCBs): Apex tier at the state level (e.g., Kerala State Co-operative Bank / Kerala Bank).

o   Central / District Co-operative Banks (DCCBs): Middle tier operating at the district level (e.g., Ernakulam District Co-operative Bank).

o   Primary Agricultural Credit Societies (PACSs) / Rural Development Banks: Grassroots/village tier dealing directly with farmers (e.g., Kanayannur Taluk Cooperative Agricultural and Rural Development Bank).

·         Regulation: Regulated jointly by the RBI and NABARD under the Banking Regulation Act, 1949.

Reserve Bank of India (Rural Co-operative Banks – Know Your Customer) Directions, 2025 (Updated as on September 18, 2026)

https://rbi.org.in/scripts/NotificationUser.aspx?Mode=0&Id=12988

8. Urban Cooperative Banks (UCBs)

·         Definition: Cooperative credit institutions located in urban and semi-urban areas, operating on a single-tier cooperative structure.

·         Membership: Owned and controlled by their members (borrowers and depositors) who elect the board of directors.

·         Examples in Kochi: People’s Urban Co-operative Bank and Aluva Urban Cooperative Bank.

·         Regulation: Dual regulation by the RBI and State Registrar of Cooperative Societies.

Reserve Bank of India (Urban Co-operative Banks – Know Your Customer) Directions, 2025 (Updated as on September 18, 2026)

https://rbi.org.in/scripts/NotificationUser.aspx?Mode=0&Id=13014


9. Local Area Banks (LABs)

·         Definition: Small, private-sector banks introduced in 1996 to mobilize rural and semi-urban savings and finance local economic activities.

·         Jurisdiction: Operations are typically restricted to a small, compact area of two or three contiguous districts.

·         Status: Designed to bridge local credit gaps; a small number operate as non-scheduled or scheduled entities.

Reserve Bank of India (Local Area Banks – Know Your Customer) Directions, 2025 (Updated as on September 18, 2026)

https://rbi.org.in/scripts/NotificationUser.aspx?Mode=0&Id=13064

10. Payments Bank

Payments banks focus on basic payment and remittance services, operating on a smaller scale without credit risk.

·         Lending: Cannot issue loans or credit cards.

·         Deposits: Can accept demand deposits (savings and current accounts) up to ₹2 lakh per customer.

·         Investments: Must invest at least 75% of their deposit balances in government securities.

·         Services: Offer debit cards, mobile banking, and internet banking.

·         Examples: Airtel Payments Bank, India Post Payments Bank, and Fino Payments Bank.

Reserve Bank of India (Payments Banks – Know Your Customer) Directions, 2025 (Updated as on December 29, 2025)

https://rbi.org.in/scripts/NotificationUser.aspx?Mode=0&Id=13090

11. Small Finance Bank (SFB)

Small finance banks function like regular commercial banks on a smaller scale, targeting unbanked areas, micro-industries, and small farmers.

·         Lending: Fully permitted to provide credit, issue loans, and issue credit cards.

·         Deposits: Can accept all types of deposits, including savings, current, recurring, and fixed deposits with no deposit limits.

·         Priority Lending: Must direct 75% of their adjusted net bank credit to priority sector lending (agriculture, MSMEs, etc.).

·         Services: Offer full banking products, including ATM cards and specialized loans.

·         Examples: AU Small Finance Bank, Ujjivan Small Finance Bank, and Equitas Small Finance Bank.

Reserve Bank of India (Small Finance Banks – Know Your Customer) Directions, 2025 (Updated as on September 18, 2026)

https://rbi.org.in/scripts/NotificationUser.aspx?Mode=0&Id=13109

12. Commercial Banks

·         Definition: Large, profit-oriented institutions registered under the Reserve Bank of India Act, 1934, that handle general banking for the public, businesses, and government.

·         Structure: Divided into Public Sector Banks (e.g., State Bank of India), Private Sector Banks (e.g., Federal Bank, CSB Bank), Foreign Banks, Regional Rural Banks, Small Finance Banks, and Payments Banks.

·         Regulation: Regulated by the RBI under the Banking Regulation Act, 1949.

Reserve Bank of India (Commercial Banks – Know Your Customer) Directions, 2025 (Updated as on September 18, 2026)

https://rbi.org.in/scripts/NotificationUser.aspx?Mode=0&Id=13141





Those who read this also Read:


1. Foreign Exchange Companies and AML/CFT

2. Card System Operators& AML/CFT 

3. RBI, India's  AML/CFT Guidelines for NPPS

4. NBFCs & AML/CFT: RBI, India

5. RBI Guidelines AML/CFT & PMLA 2002



Formerly Faculty for Finance & Associate Dean, IBS-Kochi MBA (Banking & Finance – CUSAT);CFA. Accredited Management Teacher from CME of AIMA, Delhi has been in Management Education from 1988. Exposure is in the field of Mutual Funds, Market Research, Project Report preparation & evaluation, Advertising & NGO Activities. This Chief Manager, UTI Asset Management Co Pvt. Ltd(1992-2003), Mumbai. Undergone training in Case Study method of teaching under Mr. Trevor Williams and Mr. Scott M Andrews conducted by the ECCH, UK . Published Books & Book Review, Series of academic articles and maintains a column on MFs under "Fund scan" in Business Manorama since January 2007,Contributes "Portfolio Doctor" column for 'Sampadyam' a wealth mgt publication in Malayalam from manorama group since February 2007, Listed her case studies at asiacase.com.Presented papers in national & international conferences on Mutual Funds. Faculty Member @ ASIET, Kalady from 2010 to June 2019. Dean @ SNGIST, N Paravur, Ernakulam from Sep 2019 -Jan 2021, I continue my efforts to spread the knowledge in area of Finance and contribute to Management Education

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