The RBI has revised derivative contract limits for Small Finance Banks through the 2026 Amendment Directions, tightening risk controls in line with prudential norms.
RBI Tightens Derivatives Exposure for Small Finance Banks
On October 19, 2026, the Reserve Bank of India issued the Reserve Bank of India (Small Finance Banks - Miscellaneous) Amendment Directions, 2026, amending limits on non-option derivative contracts. The revision, made under Section 35A of the Banking Regulation Act, 1949, applies to Section C of Chapter IV of the 2025 Directions, which governs permissible exposures and risk thresholds.
The updated guidelines reflect a recalibration of market risk limits in response to evolving financial conditions and leverage in derivatives trading. While specific quantitative thresholds were not detailed in the summary notification, institutions are required to adhere strictly to revised internal risk management frameworks. The move aligns with broader supervisory efforts to enhance resilience in smaller banking entities, especially those engaged in forex and interest rate derivatives.
Legal and compliance teams must reassess existing derivative contracts and internal limit-setting mechanisms. This amendment reinforces the RBI's focus on macroprudential stability and calls for immediate updates to board-approved risk policies and audit trails. Future scrutiny may include off-site monitoring of exposure breaches.
Citations
- Section 35A, Banking Regulation Act, 1949
