Policy & Regulation: Financial & market regulation

Overview

RBI, SEBI and insolvency rules that shape lending, capital raising, provisioning and shareholding.

NCLT

The National Company Law Tribunal is the adjudicating authority under the Insolvency and Bankruptcy Code, 2016. A financial (Sec 7) or operational creditor (Sec 9) can petition on a proven default; on admission the board is suspended, a resolution professional takes over and a Sec 14 moratorium halts recovery
A resolution plan needs 66% CoC approval and tribunal sanction, failing which the company is liquidated

ECL (expected credit loss) framework - RBI

RBI's final Directions of 27 Apr 2026 replacing incurred-loss IRACP provisioning with a forward-looking Expected Credit Loss model from 1 Apr 2027, aligning India with IFRS 9. It applies to scheduled commercial banks and AIFIs, excluding SFBs, payments banks and RRBs
Assets are staged 1 to 3 by whether credit risk has risen significantly since origination; the 90-day NPA definition is retained, and a glide path to 31 Mar 2031 spreads the one-time hit

FCNR(B) foreign currency NRI deposits

Foreign Currency Non-Resident (Banks) deposits - term deposits held by NRIs in permitted foreign currencies, typically one to five years. The bank carries no exchange risk, since both principal and interest are denominated and repaid in the same foreign currency
Interest rate ceilings are set by RBI as a spread over the currency's reference benchmark, and the ceiling is periodically relaxed to attract inflows

PSLC trading

Priority Sector Lending Certificates let a bank that has exceeded its priority sector targets sell the excess as a tradable certificate to a bank that has fallen short. Only the compliance obligation transfers - the underlying loan, its risk and its returns stay with the originator
Certificates are traded on RBI's e-Kuber platform in four categories, expiring each 31 March

Acquisition financing (RBI)

RBI's move to permit banks to lend against shares for corporate acquisitions - financing takeovers of listed companies, an activity historically restricted to NBFCs and offshore lenders while Indian banks were barred
It sits alongside a wider liberalisation of capital market exposure norms, with limits, risk weights and governance conditions attached

MPS (minimum public shareholding) norms - SEBI 25%

Rule 19A of the Securities Contracts (Regulation) Rules and SEBI LODR require every listed company to keep at least 25% of shares in public hands. PSU banks were given special forbearance, most recently to 1 Aug 2026
Several state lenders remain far outside it - government holding has stood above 90% at Punjab & Sind Bank, Indian Overseas Bank, UCO Bank and Central Bank of India, against a 75% ceiling

PSB mega-merger (2019-20)

The consolidation announced Aug 2019 and effective 1 Apr 2020, merging ten public sector banks into four and cutting the total from 27 in 2017 to 12. The stated aims were scale, technology investment capacity and stronger underwriting
It followed the earlier absorption of associate banks and Bharatiya Mahila Bank into the largest state lender

ECL (expected credit loss) transition glide path

The transition relief within RBI's Expected Credit Loss framework. The one-time increase in provisions on the existing book at 1 Apr 2027 can be spread to 31 Mar 2031 rather than taken in a single year
This addresses the stock of provisions on day one; the flow of ongoing ECL charges thereafter is recognised normally

Universal bank transition (RBI)

RBI's Apr 2024 on-tap framework letting a listed small finance bank convert to a universal bank. Eligibility needs net worth of Rs 1,000 cr, five years of operation, consistent profitability, GNPA below 3% and NNPA below 1% for two consecutive years, and a diversified loan portfolio
Of eleven operational SFBs only three have applied; one received in-principle approval in Aug 2025 and two applications were returned

PSL 60% of ANBC (small finance bank lending mandate)

Small finance banks must lend at least 60% of Adjusted Net Bank Credit to priority sectors, against 40% for universal banks, and at least 50% of the loan book must be in tickets up to Rs 25 lakh
These are the licence conditions that define the model - an SFB is chartered to serve the underserved, not to choose its own mix

PSLC seller-side (SFB priority-sector surplus)

Priority Sector Lending Certificates as they matter to a small finance bank - the sell side rather than the buy side. An SFB required to lend 60% to priority sectors typically originates well beyond that and monetises the excess
Certificates transfer only the compliance credit; the loan, its risk and its interest stay on the originator's books

NHB (National Housing Bank) refinance

National Housing Bank, a wholly RBI-owned institution, provides refinance to housing finance companies and banks against their housing loan portfolios, at rates below market borrowing and with tenors matched to housing assets
Allocations are directed - concessional windows favour affordable housing, rural housing and lending to weaker sections, so eligibility shapes the lender's book

Surrender value (SSV) norms for life policies

IRDAI's master circular of Jun 2024, effective 1 Oct 2024, raising the Special Surrender Value payable to policyholders exiting early. Products had to be refiled and relaunched under the new rules by 31 Dec 2024
The change forces insurers to return more of the premium paid on early exit, transferring value from the insurer's margin to the departing customer

Ind AS 117

The Indian equivalent of IFRS 17, replacing Ind AS 104 for insurance contracts. It requires liabilities to be measured at current estimates of future cash flows with an explicit risk adjustment, and profit released as service is delivered through a contractual service margin
IRDAI notified implementation from Apr 2026 with two years of parallel reporting alongside existing standards

Bancassurance open architecture

The regulatory question of whether a bank distributing insurance must offer products from multiple insurers rather than only its promoter or partner company. Banks may already tie up with several insurers, but in practice most sell overwhelmingly from one
Regulators have pushed toward mandating genuine multi-insurer choice, with caps proposed on how much business a bank can source from a single group insurer

Obligatory cession (GIC Re)

Every Indian general insurer must cede a fixed share of each policy it writes to the national reinsurer, GIC Re, at terms set by regulation rather than negotiated in the market. The percentage is reviewed periodically and has been reduced over time
It guarantees the national reinsurer a baseline book and keeps reinsurance premium within the country

Royalty-on-royalty (SC 2026)

Statutory royalty under the MMDR Act is charged on Average Sale Price - 15% for iron ore - and DMF and NMET contributions are calculated as a percentage of that royalty. The dispute was whether including royalty in the base amounted to a tax on a tax
The Supreme Court upheld the levy in 2026, and separately confirmed that royalty is payable at the rate in force when the mineral is dispatched, not when the lease was auctioned

EC (environmental clearance) production caps

Environmental clearance granted to a mine specifies a maximum permitted production, and exceeding it is a violation regardless of demand or reserves. Raising the cap requires fresh appraisal and often public consultation
Clearance conditions also govern overburden handling, water use, air quality and transport routes

SBR (scale-based regulation) for NBFCs

RBI's framework since Oct 2022 classifying NBFCs into Base, Middle, Upper and Top layers by size, activity and systemic importance. Upper Layer entities face near-bank prudential norms - stricter capital adequacy, board risk committees, ICAAP and mandatory listing
The Upper Layer threshold is asset-size based, so growth itself triggers reclassification

Unsecured lending risk weights

RBI raised risk weights on consumer credit from 100% to 125% in Nov 2023 and on credit card receivables to 150% for banks, then partially restored bank exposure weights to NBFCs in 2025
Higher risk weights force more capital per rupee lent, curbing growth without prohibiting it

Co-lending & digital lending norms

Co-lending lets a bank and NBFC share a loan, with the NBFC originating and servicing while the bank funds most of the principal. Digital lending guidelines make the regulated entity accountable for its lending service providers
The NBFC contributes reach and underwriting; the bank contributes cheap funding

Gold loan LTV & gold price leverage

RBI raised the loan-to-value ceiling from 75% to 85% for small gold loans, with a tiered structure from Apr 2026 - 85% up to Rs 2.5 lakh, 80% to Rs 5 lakh and 75% above. Loan size scales directly with the gold price
Rising gold prices raise the borrowable amount against the same pledged ornaments

SEBI derivatives curbs

A sequence of measures to reduce retail losses in index and stock derivatives - higher contract sizes, fewer weekly expiries, upfront premium collection and, from 5 May 2026, removal of calendar spread benefits on expiry day for single-stock derivatives
Active client accounts fell from about 4.92 crore to 4.57 crore

SEBI Stock Brokers Regulations 2026

Notified 7 Jan 2026, repealing the 1992 framework entirely and consolidating registration, governance, client asset protection, cyber security, conduct and net worth into one rulebook. Algo trading rules require unique order identifiers, registered static IPs and OAuth authentication, with brokers accountable for all algo orders on their platforms
Brokers may now undertake other regulated financial activities with SEBI approval

Exchange surveillance measures (ASM, GSM, ESM)

NSE and BSE run three graded frameworks - Additional, Graded and Enhanced Surveillance Measures - that move stocks showing abnormal price or volume behaviour into tighter trading conditions. ESM targets small and micro caps, generally below Rs 1,000 crore market capitalisation
Stages escalate from 100% margin and a 5% band to trade-to-trade settlement, periodic call auction, weekly-only trading and finally square-off only

SME platform listing & migration norms

SEBI tightened the SME listing framework after a run of thinly covered issues - an operating profit track record before listing, a cap on the offer-for-sale portion, phased lock-in release for promoters and tighter limits on use of proceeds, alongside closer scrutiny of draft documents
Migration from the SME platform to the main board carries its own eligibility and public-shareholding tests

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