Banking & Finance Updates October 2026

1.  RBI Increases Repo Rate to 5.50%: Key Implications for Banks, Borrowers and Financing Arrangements in India

RBI Increases Repo Rate to 5.50%

The Reserve Bank of India (RBI), in its Monetary Policy Committee (MPC) meeting held from 5 to 7 October 2026, increased the policy repo rate by 25 basis points, from 5.25% to 5.50%. The decision followed the MPC’s assessment of evolving macroeconomic and financial developments, including inflationary pressures, volatility in global crude oil prices and geopolitical uncertainties. The MPC also shifted its monetary policy stance from neutral to calibrated tightening, indicating that rate cuts are off the table in the near term, with future policy action dependent on evolving economic conditions.

Following the revision, the Standing Deposit Facility (SDF) rate stands at 5.25%, while the Marginal Standing Facility (MSF) rate and the Bank Rate stand at 5.75%. The decision reflects the RBI's continued emphasis on price stability while monitoring domestic economic growth and external risks.

Impact on Borrowers and Financial Institutions

The increase in the repo rate may raise borrowing costs for borrowers with floating-rate loans linked to the repo rate or other affected benchmarks. The extent of the impact will depend on the applicable benchmark, contractual spread and interest reset mechan-ism under the relevant financing documents.

For banks and financial institutions, the rate revision may influence lending rates, funding costs, treasury operations and asset-liability management. Businesses with substantial debt exposure should reassess interest expenses, projected cash flows and debt-servicing capacity. Deposit rates may also be revised by individual banks depending on their funding requirements and commercial policies.

Legal and Transactional Implications

From a banking and finance legal perspective, the development highlights the importance of reviewing interest rate provisions in existing and proposed financing arrangements. Particular attention should be given to benchmark-linked pricing, interest reset dates, lender notification requirements and repayment obligations.

A repo rate increase does not automatically result in a corresponding increase in every loan's interest rate. The applicable contractual terms and regulatory requirements determine the actual effect.

Key Takeaway

Banks, borrowers and finance professionals should closely monitor subsequent MPC decisions and assess their implications for financing costs, loan structuring and financial projections. The next MPC meeting is scheduled for 2-4 December 2026.

2.  RBI KYC Amendment Directions 2026: New Overseas Document Certification Rules for Foreign Portfolio Investors (FPIs)

Introduction

On September 18, 2026, the Reserve Bank of India (RBI) issued the Reserve Bank of India (Commercial Banks - Know Your Customer) Amendment Directions, 2026 under reference RBI/2026-27/257(DOR.AML.REC.226/14.01.

002/2026-27). Coming into force with immediate effect, these statutory amendments modify the principal KYC framework originally established under the Reserve Bank of India (Commercial Banks - Know Your Customer) Directions, 2025.

The regulatory update is designed to streamline customer due diligence (CDD) workflows for foreign capital market participants by extend-ing established overseas document verification facilities to Foreign Portfolio Investors (FPIs).

Key Regulatory Modifications & Scope

1.  Redefining "Certified Copy" for Foreign Investors

The primary operational change is effected through the substitution of Paragraph 5(1)(v) of the principal Commercial Banks Directions. Under the amended framework, the definition of a "Certified Copy" concerning officially valid documents (OVDs) and offline Aadhaar verification exceptions has been broadened. Previously, the alternative overseas certification mechanism was restricted exclusively to Non-Resident Indians (NRIs) and Persons of Indian Origin (PIOs) as defined under the

Foreign Exchange Management (Deposit) Regulations, 2016. The 2026 amendment formally extends this facility to Foreign Portfolio Investors (FPIs), reducing complian-ce friction when onboarding institutional foreign capital.

2. Approved Overseas Certification Authorities

To eliminate ambiguity in remote customer onboarding, the amendment explicitly enumerates the authorized entities competent to certify original document copies abroad for NRIs, PIOs, and FPIs:

• • Authorized officials of overseas branches of Scheduled Commercial Banks registered in India;
  • Branches of overseas banking institutions maintaining correspondent or reciprocal relationships with Indian banks;
  • A Notary Public operating abroad;
  • A Court Magistrate or Judge in the foreign jurisdiction; and
  • Designated diplomatic officers at the Indian Embassy or Consulate General situated in the customer's country of residence.

3.  Statutory Enabling Framework

These Directions were promulgated by the RBI under robust statutory authority, drawing powers from Section 35A of the Banking Regulation Act, 1949, Section 11(1) of the Foreign Exchange Management Act (FEMA), 1999, and Rule 9(14) of the Prevention of Money-Laundering (Maintenance of Records) Rules, 2005.

Conclusion

The Reserve Bank of India (Commercial Banks - Know Your Customer) Amendment Directions, 2026 mark an important step toward modernizing cross-border compliance without diluting India's strict anti-money laundering (AML) standards. By permitting FPIs to utilize established overseas certification channels, the amendment is intended to facilitate overseas document certification for eligible Foreign Portfolio Investors, potentially simplifying aspects of the KYC documentation process.

Commercial banks and compliance teams should review their internal KYC policies and onboarding procedures to ensure compliance with the amended provisions.

3.  FEMA Export and Import Regulations, 2026: Role & Responsibilities of Authorised Dealer (AD) Banks

Introduction

The Reserve Bank of India (RBI) issued the Foreign Exchange Management (Export and Import of Goods and Services) Regulations, 2026 under Notification No. FEMA 23(R)/2026-RB dated 13 January 2026. The Regulations came into force on 1 October 2026, replacing the earlier Foreign Exchange Management (Export of Goods and Services) Regulations, 2015.

The Regulations establish a consolidated framework under the Foreign Exchange Management Act, 1999 (FEMA), for regula-ting cross-border trade in goods and services, including merchanting trade transactions. The accompanying RBI directions assign Authorised Dealer (AD) banks an important role in transaction processing, compliance monitoring, reporting and customer service.

This update examines the key compliance responsibilities of AD banks under the revised framework.

Key Compliance Obligations of Authorised Dealer Banks

1. Verification of Transactions and EDPMS/IDPMS Record-Keeping

AD banks are responsible for ensuring that export and import transactions handled by them comply with FEMA, the applicable rules and regulations, RBI directions and the prevailing Foreign Trade Policy.

AD banks must maintain appropriate records and ensure the processing, monitoring and closure of relevant entries in the Export Data Processing and Monitoring System (EDPMS) and the Import Data Processing and Monitoring System (IDPMS), or other systems specified by the RBI.

For imports of goods or services where the Bill of Entry or invoice, as applicable, is up to ₹10 lakh (or its equivalent in foreign currency), an IDPMS entry may be closed on the basis of an importer’s declaration that payment has been made, either in full or otherwise. Alternatively, the importer may submit such a declaration quarterly for bulk closure of entries, in accordance with the applicable provisions.

2.  Export Declaration Forms (EDF) & Payment Timelines

Under Regulation 3 of the 2026 Regulations, exporters of goods must submit an Export Declaration Form (EDF) specifying the full export value at the time of export. For goods exported through Electronic Data Interchange (EDI) ports, the EDF is deemed to have been submitted as part of the shipping bill.

Exporters of services must generally submit an EDF within 30 days from the end of the month in which the invoice is raised. The Regulations permit consolidated declarations and provide for certain alternative filing arrangements and extensions, subject to the applicable conditions.

Following the amendments effective from 1 October 2026, the export realisation and repatriation period under Regulation 5 is generally nine months from the date of shipment for goods, other than goods exported to a warehouse outside India, and from the date of invoice for services. For goods exported to a warehouse outside India, the period is nine months from the date of sale from the warehouse.

Where exports are invoiced or settled in Indian rupees, the applicable period is 12 months. Project exports are governed by the payment terms of the contract. AD banks may extend the applicable period for realisation and repatriation upon an exporter’s request, subject to the conditions prescribed under the Regulations.

AD banks must also monitor import payments in accordance with the applicable regulatory requirements and contractual arrangements.

3.      Advance Import Payments and Trade Adjustments

AD banks must process advance import payments in accordance with the applicable FEMA framework and RBI directions. Where required under the relevant provisions, banks may seek appropriate safeguards, including bank guarantees or Standby Letters of Credit (SBLCs).

Subject to the applicable regulatory conditions, AD banks may also process permitted trade adjustments, including:

Set-off of export receivables against import payables, where the prescribed conditions are satisfied;

Third-party export receipts and import payments, subject to applicable requirements and verification of the transaction's bona fides; and

Merchanting trade transactions in accordance with the relevant FEMA provisions and RBI directions.

These arrangements remain subject to the applicable eligibility criteria, documen-tation and compliance requirements. The Regulations should not be interpreted as granting AD banks unrestricted discretion to approve all such transactions.

4.  Regulatory Reporting, Customer Charges and Internal Governance

The RBI directions require AD banks to maintain a separate, comprehensive and documented internal policy and Standard Operating Procedure (SOP) for handling export and import transactions, including merchanting trade and related reporting.

The policy and SOP must address matters such as documentation, applicable timelines and charges, extensions of prescribed periods, adjustments to export proceeds, advance receipts and payments, internal approval responsibilities and factoring arrangements. Banks must also establish appropriate escalati-on procedures and an appeal mechanism for customer grievances.

AD banks must ensure that charges for handling transactions and associated processes are reasonable and proportionate to the services rendered. They must disclose their policy and the main features of the SOP on their websites. The directions also prohibit charging customers penalties for regulatory delays or violations attributable to the custom-er, as specified in the applicable provisions.

Under the accompanying RBI directions, AD banks must send references to the RBI through the PRAVAAH portal and inform the Directorate of Enforcement (DoE) of doubtful transactions.

Conclusion

The Foreign Exchange Management (Export

and Import of Goods and Services) Regulations, 2026, read with the subsequent amendment and accompanying RBI directions, establish a consolidated and principle-based framework for cross-border trade compliance. The framework places significant responsibility on AD banks to ensure appropriate transaction processing, monitoring, reporting and customer service.

The reduction in the standard export realisation period to nine months, and to 12 months for exports invoiced or settled in Indian rupees, makes timely monitoring particularly important. AD banks and businesses engaged in cross-border trade should review their internal procedures, docu-mentation, invoicing practices and payment arrangements to ensure compliance with the framework effective from 1 October 2026.

4. RBI Amends CRR and SLR Directions for Local Area Banks: Key Compliance Requirements for 2026

Introduction  

On 11 September 2026, the Reserve Bank of India (RBI) issued the Reserve Bank of India (Local Area Banks - Cash Reserve Ratio and Statutory Liquidity Ratio) Second Amendment Directions, 2026, under reference RBI/2026-27/255  (DOR.RET.REC.220/12.01.001/2026-27). The amendment took effect immediately and modifies the Reserve Bank of India (Local Area Banks - Cash Reserve Ratio and Statutory Liquidity Ratio) Directions, 2025, dated 28 November 2025.

The amendment follows the inclusion of a Local Area Bank in the Second Schedule to the Reserve Bank of India Act, 1934. It incorporates provisions applicable to scheduled banks into the existing framework governing Local Area Banks, particularly in relation to Cash Reserve Ratio (CRR), Statutory Liquidity Ratio (SLR), exemptions and penalties for non-compliance.

The Directions have been issued under Section 35A of the Banking Regulation Act, 1949, read with Section 42 of the Reserve Bank of India Act, 1934, and Sections 18 and 24 of the Banking Regulation Act, 1949.

Key Regulatory Amendment

1.  Incremental CRR and Minimum Daily CRR Maintenance

The amendment introduces Paragraph 7A, empowering the RBI to require scheduled banks to maintain an additional average daily balance with the RBI, over and above the CRR balance otherwise required under Section 42(1) of the Reserve Bank of India Act, 1934. The additional balance is calculated with reference to the increase in a bank's net demand and time liabilities (NDTL) over the benchmark specified in the relevant RBI notification.

Paragraph 8B further requires every scheduled bank to maintain at least 90% of its prescribed CRR on each day during the reporting fortnight, while ensuring that the average daily balance maintained over the fortnight meets the prescribed CRR requirement.

These provisions strengthen the monitoring of reserve maintenance by scheduled banks, including scheduled Local Area Banks.

2.   Calculation of Demand and Time Liabilities for Savings Deposits

Paragraph 15A clarifies the treatment of savings bank deposits for calculating the proportion of demand liabilities and time liabilities by scheduled banks. The existing method, based on the position at the close of business on 30 September and 31 March each year, continues to apply, with interest on savings bank deposits calculated on a daily-product basis.

This provision maintains the prescribed periodic calculation methodology while clarify-ing the treatment of interest on savings deposits.

3.        Exemptions from CRR and SLR Requirements

The amendment introduces Paragraph 16A, specifying categories of liabilities exempt from CRR for scheduled banks. These include:

Net liabilities to the banking system, calculated in accordance with Section 42(1) of the Reserve Bank of India Act, 1934;

Credit balances in Asian Clearing Union (ACU) US-dollar accounts; and

Funds borrowed under market repo transactions against Government securities.

The amendment also provides that funds borrowed under market repo transactions against Government securities are exempt from SLR requirements. In addition, corresponding changes clarify the treatment of excess balances maintained by a scheduled Local Area Bank with the RBI for the purposes specified under the Directions.

These exemptions are subject to the precise conditions and scope set out in the amended provisions.

4.    Penal Interest and Consequences of CRR Shortfalls

The amendment substitutes Paragraph 37 to clarify the penal interest applicable to CRR shortfalls. For scheduled Local Area Banks, a shortfall in the prescribed daily CRR attracts penal interest at 3% per annum above the Bank Rate on the amount of the shortfall. If the shortfall continues on the succeeding day or days, the penal interest increases to 5% per annum above the Bank Rate.

Where a scheduled Local Area Bank fails to maintain the prescribed CRR on an average basis during a reporting fortnight, penal interest is recoverable in accordance with Section 42(3) of the Reserve Bank of India Act, 1934. Non-scheduled Local Area Banks remain subject to the applicable penalty provisions under Section 18(1A) of the Banking Regulation Act, 1949.

The newly inserted Paragraph 38A further addresses continued defaults by scheduled banks. Where the default continues into the succeeding fortnight after the prescribed penal Banking & Finance Updates | King Stubb & Kasiva 06

interest becomes payable, the provision sets out potential consequences for directors, managers and secretaries who are knowingly and wilfully party to the default. It also empowers the RBI, in the circumstances specified, to prohibit the scheduled bank from accepting fresh deposits.

Conclusion

The Reserve Bank of India (Local Area Banks – Cash Reserve Ratio and Statutory Liquidity Ratio) Second Amendment Directions, 2026 align the applicable reserve-maintenance framework for scheduled Local Area Banks with the relevant provisions governing scheduled banks. The amendments address incremental CRR, minimum daily reserve maintenance, savings deposit calculations, specified CRR and SLR exemptions, and penalties for reserve shortfalls.

Local Area Banks should review the amended Directions alongside the principal Directions dated 28 November 2025 and ensure that their treasury, reporting and compliance procedures reflect their scheduled or non-scheduled status. Particular attention should be given to daily CRR monitoring, the treatment of exempt liabilities and the consequences of continuing reserve shortfalls.