Regulatory Updates
Notification on Processing of Regulatory Authorisations/ Licenses/ Approvals through PRAVAAH
The Reserve Bank of India (“RBI”) has, vide notification dated 28 April 2025, directed all regulated entities (including Scheduled Commercial Banks (such as Small Finance Banks, Local Area Banks, and Regional Rural Banks), Primary (Urban) Co-operative Banks, State and Central Co-operative Banks, All-India Financial Institutions, Non-Banking Financial Companies (including Housing Finance Companies), Primary Dealers, Non-bank Payment System Operators, and Credit Information Companies) to submit applications for regulatory authorisations, licenses, and approvals to the RBI exclusively through RBI’s PRAVAAH portal.
Relaxation of limits on investments by FPIs in Corporate Debt Securities through the General Route
The RBI has, vide circular dated 8 May 2025, announced key relaxations for Foreign Portfolio Investors (“FPIs”) investing in corporate debt securities through the general route. Specifically, the RBI has withdrawn two regulatory constraints previously applicable under the Master Direction – Reserve Bank of India (Non-Resident Investment in Debt Instruments) Directions, 2025: the short-term investment limit and the concentration limit.
Earlier, FPIs were restricted from investing more than 30% of their corporate debt portfolio in corporate debt securities with a residual maturity of up to one year, and a single FPI (including related FPIs) could not invest in corporate debt securities for more than 15% of the prevailing investment limit for these securities in case of long-term FPIs and 10% of prevailing investment limit for other FPIs. With these limits now removed, FPIs are afforded greater flexibility to manage their portfolios.
SEBI introduces Framework for ESG Debt Securities (other than green debt securities)
The Securities and Exchange Board of India (“SEBI”) has, vide circular dated 5 June 2025, introduced a framework for the issuance and listing of Environment, Social and Governance (“ESG”) Debt Securities, excluding green debt securities (“Framework”). The Framework has been notified under Regulation 12A of the SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021, and comes into immediate effect.
The Framework defines and provides conditions for three categories of ESG debt securities: social bonds, sustainability bonds, and sustainability-linked bonds (“SLBs”). Social bonds are debt securities issued to fund projects that aim to address or mitigate a specific social issue and/or achieve positive social outcomes such as affordable basic infrastructure/housing, access to essential services (e.g. health, education), employment generation, food security and socio-economic empowerment. Sustainability bonds are debt securities issued for raising funds, to be utilised for finance or re-finance of a combination of eligible green project(s) and social project(s), while SLBs are debt securities having as its financial and/or structural characteristics linked to predefined sustainability objectives of the issuer, subject to the condition that such objectives are measured through predefined Sustainability Key Performance Indicators (“KPIs”) and assessed against predefined Sustainability Performance Targets (“SPTs”).
Some of the key provisions of the Framework are:
- Issuers can label debt securities as ESG debt instruments only if the projects to be financed align with SEBI’s definitions or with international frameworks such as the International Capital Market Association (ICMA) Principles / Guidelines, Climate Bonds Standard, ASEAN or EU standards, or other standards specified by Indian financial regulators. The selected standard must be disclosed in the offer document and followed consistently throughout the life of the instrument.
- Post-issuance, issuers of social and sustainability-linked bonds are required to provide annual disclosures on fund utilization, performance against social impact objectives, and mitigation plans for social risks. These disclosures must be included in the issuer’s annual report and verified by an external auditor. SLB issuers must report annually on KPI performance, including independent third-party verification of SPT achievements and their effect on bond terms.
- An independent third-party reviewer or ESG rating provider registered with SEBI is required to certify compliance with applicable standards. The scope of review and credentials of the certifier must be disclosed in the offer document.
To curb “purpose-washing”, the Framework imposes norms against false or misleading claims about the bond’s purpose, misuse of proceeds, or misrepresentation of third-party certifications. In case of deviation regarding the usage of funds for social bonds or sustainability bonds already issued, majority debenture holders may require early redemption of such securities.
RBI (Know Your Customer (Amendment) Directions, 2025
The RBI has, vide notification date 12 June 2025, notified RBI (Know Your Customer (KYC)) (Amendment) Directions, 2025 (“Amendment Directions“) to amend the Reserve Bank of India (Know Your Customer (KYC)) Directions, 2016 (“KYC Directions“). The key provisions introduced via the Amendment Directions are set out below:
In relation to a low-risk customer (including for whom periodic updating of KYC has already fallen due), Regulated Entities (“REs”) are now mandated to allow all transactions and ensure the updating of KYC of such customers within one year of its falling due for KYC or up to 30 June 2026, whichever is later. The REs are required to subject accounts of such customers to regular monitoring.
Banks shall now collect customer self-declarations including the supporting documents, if required, for KYC updates via authorized Business Correspondents (BCs), using biometric e-KYC and electronic systems. Until digital options are fully enabled, physical submissions are allowed. BCs must authenticate and forward supporting documents submitted by customers to the bank and provide acknowledgment copies to the customers for such submission. Banks are required to update the customer’s KYC records and intimate the customer once the records get updated in the system.
REs are now required to notify customers in advance to update their KYC. At least three advance KYC update reminders are required to be provided, including one by letter, before the due date, and at least three follow-up reminders, including one by letter, after the due date if not complied with. Communications should include clear instructions for updating KYC, escalation details, and possible consequences of failure to update KYC on time. All intimations must be recorded in the RE’s system, with implementation mandated by 1 January 2026.
RBI Master Direction on Electronic Trading Platform, 2025
The RBI has, vide notification dated 16 June 2025, issued the Master Direction – Reserve Bank of India (Electronic Trading Platforms) Directions, 2025 (“Directions”), which supersedes the Electronic Trading Platforms (Reserve Bank) Directions, 2018 dated 5 October 2018. The Directions apply to entities operating Electronic Trading Platforms (“ETPs”) i.e., any electronic system, other than a recognised stock exchange, on which transactions in eligible instruments are contracted (other than where a scheduled commercial bank or standalone primary dealer operating the ETP is a sole quote/price provider and a party to all transactions). Eligible instruments comprise of securities, money market instruments, foreign exchange instruments, derivatives, or other instruments of like nature, as may be specified by the RBI from time to time.
Some of the key provisions of the Directions are:
- No entity shall operate an ETP without prior authorisation from the RBI. The eligibility criteria of such entity, inter alia includes the requirement of such company being incorporated in India, with at least 2 key managerial personnel with at least 3 years of experience in operating trading infrastructure in financial markets along with a minimum net worth criterion.
- The Reserve Bank may cancel an ETP operator’s authorisation, after giving a chance to be heard, if there is a legal or regulatory violation, breach of authorisation terms, or if continuance of authorisation harms public interest or the financial system.
- ETP operators must adhere to a comprehensive operating framework. This should cover maintenance of an objective and transparent membership criteria by the ETP, conducting proper due diligence, identifying members, having well-documented rules and regulations and ensuring pre-trade and post-trade transparency in relation to information regarding the transactions on the ETP.
- ETP operators must adopt a comprehensive risk management framework, including a robust internal control framework, covering all aspects of its operations. ETP operators must implement surveillance systems and controls to ensure fair and orderly trading.
ETP operators must submit quarterly reports detailing the functioning of the ETP and file an annual compliance report by 30 April of the succeeding financial year. ETP operators must immediately notify the RBI of any trading disruptions or market abuse. Compliance obligations also include maintaining cybersecurity and information security protocols, conducting annual IT/IS audits through certified professionals, implementing business continuity plans, and securely storing data for at least 10 years.
RBI issues the Reserve Bank of India (Project Finance) Directions, 2025
The RBI has, vide notification dated 19 June 2025, issued the Reserve Bank of India (Project Finance) Directions, 2025 (“Project Finance Directions”), which shall be effective from 1 October 2025.
Some of the key provisions of the Project Finance Directions are:
- Scope and Applicability: The directions apply to project finance exposures of all commercial banks (excluding regional rural banks, local area banks, and payment banks), all India financial institutions, co-operative banks (including urban co-operative banks), non-banking financial companies (including housing finance companies), and small finance banks.
- Project Lifecycle Phases: The framework classifies the project lifecycle into three distinct phases: Design Phase (from conceptualisation to financial closure), Construction Phase (from financial closure until the Date of Commencement of Commercial Operation (DCCO), and Operational Phase (from DCCO until the final repayment of project-finance exposure).
- Framework for Early Stress Resolution: The guidelines introduce a principle-based framework for early recognition and resolution of stress in project loans. A “credit event” during the construction phase — such as default with any lender, need for extension of the original or extended DCCO, expiry of the original or extended DCCO, is required to be reported to Central Repository of Information on Large Credit (CRILC) by the lender, followed by a 30-day prima facie review process. A consortium lender is required to notify such credit event to all other consortium members, notifying other lenders. The decision to implement a resolution plan shall be guided by the prudential framework / the Project Finance Directions.
- Resolution plans involving DCCO extension: Extension of DCCO (original / extended) under a resolution plan, whilst maintaining the ‘standard’ status of a project finance account is permitted if: (a) the extension is accompanied with a consequential shift in repayment schedule for equal or shorter duration, for up to 3 years for infrastructure projects and up to 2 years for commercial real estate projects; (b) conditions for cost overrun financing (if applicable) are met which includes a cap of 10% of original project cost excluding interest during construction, as the permitted limit of cost overrun funding by a lender; and (c) DCCO extension necessitated by an increase in scope and size of the project, complies with conditions such as such increase should be at least 25% of the original outlay.
- Downgrade to NPA: If the resolution plan is not implemented within 180 days from the end of the 30-day review period, the exposure must be downgraded to non-performing asset (NPA) status.
- Minimum Exposure Norms for Lenders: For projects in the construction phase, individual lender exposure must be at least 10% of the total project exposure if the overall exposure of lenders in the project is up to INR 15 billion. For projects with exposure above INR 15 billion, the minimum individual lender exposure should be the higher of INR 1.5 billion or 5% of the total exposure.
- Prudential conditions for Financial Closure and Disbursement: All applicable approvals for implementing/constructing a project should be obtained before financial closure (i.e. when the capital structure of the project including debt and equity, accounting to 90% of the total project cost, becomes legally binding on all stakeholders). For disbursement of funds, land or right-of-way must be in place for at least 50% of the project area in PPP infrastructure projects, and at least 75% in other project types, with the lender having the right to determine such sufficiency for transmission line projects.
- Treatment of Existing Projects: Projects that have already achieved financial closure as on 1 October 2025 will continue to be governed by the existing prudential guidelines on project finance. However, the new directions will become applicable if a fresh credit event occurs or if there is a material modification to the loan contract in such existing projects.
Case Summaries
Notice under Section 13(2) of SARFAESI Act, an invocation notice if demand therein made as per guarantee terms
The National Company Law Appellate Tribunal, Principal Bench, New Delhi (“NCLAT”), vide its judgement dated 15 May 2025 in the matter of Asha Basantilal Surana v State Bank of India and Others (Company Appeal (AT) (Insolvency) No. 84 of 2025) inter alia addressed whether a notice under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (“SARFAESI Act”) can be treated as notice for invocation of personal guarantee. The matter arose when the appellant- Asha Basantilal Surana, who had executed a personal guarantee for credit facilities obtained by M/s. Surana Metacast (India) Private Limited, filed an application under Section 94(1) of the Insolvency and Bankruptcy Code, 2016 (“IBC”) to initiate personal insolvency proceedings against herself after receiving a notice under Section 13(2) of the SARFAESI Act from State Bank of India (“SBI”).
The NCLAT analysed the language of the guarantee agreement, which required guarantors to “forthwith on demand made by the Bank deposit such sum or security as the Bank may specify”. The Tribunal held that whether a Section 13(2) notice invokes a personal guarantee depends on the words and intent of the notice. If the said notice demands payment from the personal guarantor in accordance with the guarantee agreement, it constitutes an invocation. Examining the notice in this case, the NCLAT found it was clearly addressed to the Appellant as guarantor and demanded payment of the specified amount.
The NCLAT ultimately allowed the appeal, ruling that where a notice under Section 13(2) of the SARFAESI Act makes a demand as per the guarantee agreement between the parties, such notice must be treated as notice for invocation of personal guarantee. This significant decision clarified the legal position on when SARFAESI notices can trigger personal insolvency rights, establishing that once a personal guarantee is invoked through such a notice, the personal guarantor may initiate personal insolvency proceedings under the IBC.
NCLAT directs vacation of corporate debtor’s premises occupied by suspended directors
The NCLAT, vide its judgment dated 15 May 2025, in the matter of Harish Raghavji Patel and Others vs Ajit Gyanchand Jain and Others (Company Appeal (AT) (Insolvency) No. 682 of 2025) inter alia examined whether the National Company Law Tribunal (“NCLT“) has jurisdiction to entertain an application by the resolution professional seeking possession of assets occupied by suspended directors.
The NCLAT affirmed the NCLT’s jurisdiction, referring to Section 18(1)(f) of the Insolvency and Bankruptcy Code, 2016 (“IBC“), which empowers the resolution professional to “take control and custody of any asset over which the corporate debtor has ownership rights”. The NCLAT noted that the appellants were neither lessees nor licensees and had no legal right to retain possession after the commencement of Corporate Insolvency Resolution Process (“CIRP“).
The NCLAT emphasized that the appellants’ continued possession was hindering the resolution process, with potential resolution applicants withdrawing due to uncertainty over the flats. Further, the NCLAT observed that the 10 (ten) month notice period mentioned in the board resolution permitting occupation by the appellants, had already elapsed since the resolution professional’s email requesting possession. This case was also distinguished from precedents cited by the appellants, noting that unlike those cases, here there was no leave and license agreement or civil court decree protecting the appellants’ possession.
Dismissing the appeal, the NCLAT noted that requiring the resolution professional to file a separate eviction suit ‘would unduly prolong the insolvency process, which is a time-bound process’. The NCLAT directed the appellants to vacate the premises within 10 days from the date of its judgment.
Arbitration under SARFAESI Act applies to inter-creditor disputes without pre-existing written arbitration agreement
The Supreme Court of India (“SC”), vide its judgment dated 23 May 2025, in the matter of Bank of India vs M/S Sri Nangli Rice Mills Pvt. Ltd. and Others (Civil Appeal No. 7110 OF 2025), addressed a dispute between two banks over the same secured assets. The case involved competing claims by Bank of India and Punjab National Bank over stocks of paddy and rice that were hypothecated to Bank of India in 2003 and later pledged to Punjab National Bank in 2013. When the borrower, M/s Sri Nangli Rice Mills Pvt. Ltd., defaulted on loan repayment to Bank of India in 2015, recovery proceedings were initiated.
The central legal issue was whether the Debt Recovery Tribunal (“DRT”) had jurisdiction to adjudicate disputes between two banks under the SARFAESI Act, or whether such disputes must be resolved through arbitration under Section 11 of the said Act. The DRT initially ordered a joint sale of the secured assets but later held it had no jurisdiction to adjudicate disputes between two banks and directed them to resolve the dispute through arbitration under Section 11 of the SARFAESI Act. The High Court of Punjab and Haryana upheld this decision vide order dated 7 October 2010 (“2010 Order”), leading to Bank of India’s appeal to the SC.
The SC upheld the 2010 Order, holding that for Section 11 of the SARFAESI Act to apply, two conditions must be met: (i) the dispute must be between financial institutions, and (ii) it must relate to securitization, reconstruction, or non-payment of any amount due. The SC clarified that Section 11 of the SARFAESI Act creates a legal fiction of an arbitration agreement between the specified parties, thus there is no requirement for a pre-existing written arbitration agreement. However, if the relationship between two banks is that of a lender and borrower, then Section 11 will not apply.
This judgment significantly impacts the financial sector by providing clarity on jurisdictional aspects of dispute resolution under the SARFAESI Act. The SC noted that the objective of Section 11 of the SARFAESI Act was to avoid delays in recovery proceedings caused by disputes between creditors and to ensure that such conflicts do not obstruct the recovery of bad debts. Given that proceedings before the DRT are primarily summary in nature, the legislature deliberately excluded inter-creditor disputes from its scope by omitting the term ‘borrower’ in Section 11. Accordingly, when a dispute arises between secured creditors, and they meet the two conditions, the DRT has no jurisdiction and arbitration is the prescribed mechanism for resolution.
For more information contact:
Jhinook Roy
Practice Head – Finance
jhinook.roy@veritaslegal.in
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