RBI Red Lines: The Reserve Bank of India (RBI) has set new and stringent corporate governance standards for 2026, creating a major stir in the banking sector. Under Governor Sanjay Malhotra’s leadership, the central bank’s clear message is “system security, not promoter dominance, is paramount.” This new strictness poses a challenge, particularly for private banks where the promoter group holds a significant stake or whose governance record has been controversial in recent times.

New Red Lines for Promoter-Based Banks

The RBI has significantly tightened its Related Party Lending regulations, effective April 1, 2026. Under the new guidelines, institutions like Kotak Mahindra Bank and Bandhan Bank will now have to adopt a zero-tolerance policy on loans to their promoter groups, their relatives, and their associated entities.

Banks will now need to seek approval from a special board committee, which must have a majority of independent directors, to lend to companies affiliated with the promoter group. The RBI is no longer restricting “fit and proper” criteria to paperwork. Board-level ring-fencing has been mandated to keep promoters out of the bank’s day-to-day operations.

Kotak and Bandhan

These regulations for Kotak Mahindra Bank come at a time when the bank recently resolved its IT governance restrictions (imposed in April 2024) in February 2025. The RBI is now closely examining any potential conflict of interest between the bank’s digital infrastructure and the promoter group.

The challenge for Bandhan Bank, however, is slightly different. Following the departure of the bank’s founder, Chandrashekhar Ghosh, as MD & CEO, the RBI now wants to see an institutionalized governance model at the bank. Bandhan Bank must submit a detailed roadmap by March 31, 2026, outlining how it will reduce its group exposure and completely separate the promoter’s financial activities from the bank’s core business.

Supervision of Banks with Governance Issues

The RBI has adopted an “Intense Supervision” model for banks with a tainted governance track record. In 2026, if a bank receives complaints of harassment or mis-selling during loan recovery, the RBI will not only impose fines but will also appoint an Additional Director on the bank’s board without delay.

Crackdown on Recovery Agents

Under the new rules, which will come into effect from July 2026, any mental harassment by recovery agents will be directly held accountable by the bank’s top management.

Sale of Premium Products

Banks will now be required to sell third-party products, such as insurance or mutual funds, based on customer profiles. If a bank fails any suitability test, its fee income may be restricted.

How will customers benefit

The RBI’s efforts are aimed at bringing Indian banking closer to global standards (Basel III+). For promoters, the bank is no longer just a “family business,” but a public trust monitored through 24/7 digital surveillance. In the long run, these stricter regulations are beneficial for investors seeking “safe and stable” returns, as improved governance translates into lower NPAs and better valuations.

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