Sunday, 16 August 2026

RBI (Non-Banking Financial Companies - Compliance Function) Directions, 2026

1. Executive Summary

The RBI (NBFCs – Compliance Function) Directions, 2026 represent a significant strengthening of the compliance governance framework applicable to NBFCs in the Middle and Upper Layers. The framework moves beyond a conventional compliance-monitoring model and establishes the Compliance Function as an independent, adequately resourced and institution-wide governance function with direct access to senior management, the Board/Audit Committee of the Board and RBI.

The Directions adopt a proportionality-based approach, requiring NBFCs to structure their compliance framework according to their governance arrangements, scale of operations, risk profile and organisational structure.

A particularly important feature is the enhanced status accorded to the Chief Compliance Officer (CCO). The CCO is required to have appropriate seniority, independence, tenure, access to information and direct reporting arrangements, while restrictions have been imposed on "dual hatting" and reporting relationships with business verticals.

The Directions also introduce a stronger emphasis on technology-enabled compliance monitoring, requiring comprehensive, integrated, enterprise-wide and workflow-based compliance solutions with escalation mechanisms and a unified management dashboard.

2. Applicability and Regulatory Scope

The Directions apply to NBFCs in the Middle Layer and Upper Layer registered under the RBI Act, 1934 or the Factoring Regulation Act, 2011, unless otherwise specified. They are aligned with the regulatory structure prescribed under RBI's Scale Based Regulation framework.

This is important because the regulatory expectation is not merely that an NBFC should have a compliance officer or maintain a compliance calendar. The Directions contemplate an enterprise-wide compliance architecture covering statutory, regulatory, conduct and supervisory requirements.

The definition of Compliance Risk is also broad, encompassing the risk of regulatory sanctions, material financial loss and reputational loss resulting from failure to comply with applicable laws, regulations, rules and codes of conduct.

3. Board and Audit Committee Responsibilities

The Board/ACB assumes a central governance role.

It must ensure that an appropriate Compliance Policy is established and implemented and must prescribe the periodicity for reviewing compliance risk.

The framework therefore places compliance squarely within the Board's governance responsibilities rather than treating it as merely an operational or administrative function.

Annual compliance risk assessment

Senior management must conduct an annual compliance risk assessment identifying and evaluating significant compliance risks and preparing a plan to manage them.

The annual review must cover, among other matters:

compliance failures during the preceding year;
consequential losses and regulatory action;
remedial and disciplinary measures;
major regulatory guidelines issued during the year;
compliance with fair-practice codes;
standards prescribed by self-regulatory bodies;
accounting standards; and
rectification of significant deficiencies identified through audits and RBI inspections.

Implication: The Board/ACB should expect compliance reporting to become considerably more analytical. A simple statement that "all compliances have been completed" would not adequately demonstrate the nature of oversight contemplated by these Directions.

4. Board-Approved Compliance Policy

The Compliance Policy must be comprehensive and clearly articulate:

the NBFC's compliance philosophy;
expectations regarding compliance culture;
the structure and role of the Compliance Function;
the role of the CCO;
processes for identifying, assessing, monitoring, managing and reporting compliance risk.

The policy must be reviewed at least annually.

It must additionally address independence of the Compliance Function, regulatory monitoring, compliance testing, reporting to senior management and the Board/ACB, access to information, dissemination of regulatory changes and compliance approval of new processes and products.

Professional observation

This effectively requires an NBFC to treat its Compliance Policy as a living governance document, rather than a static policy prepared merely for regulatory purposes.

5. Independence of the Compliance Function

One of the strongest themes running through the Directions is independence.

The Compliance Function must be:

independent;
sufficiently resourced;
clearly defined in terms of responsibilities; and
subject to periodic independent review.

Even where separate departments are responsible for individual statutory or regulatory areas, those departments retain responsibility for their respective areas, while the Compliance Function provides overall oversight.

This creates a useful distinction between:

Primary compliance responsibility → respective business/functional departments

and

Overall compliance oversight → Compliance Function.

Accordingly, compliance cannot be outsourced entirely to the Compliance Department; every employee retains responsibility for complying with applicable requirements.

6. Staffing and Competence

The Directions require the Compliance Function to have personnel possessing knowledge across multiple disciplines, including:

statutory and regulatory requirements;
law;
accountancy;
risk management;
information technology; and
business-line/audit experience.

The NBFC is also required to provide appropriate succession planning so that future skill gaps do not undermine the compliance framework.

This is significant because the regulatory expectation is shifting from a compliance function based predominantly on legal/regulatory knowledge to a multidisciplinary risk-oriented compliance capability.

7. Expanded Responsibilities of the Compliance Function

The Directions assign extensive responsibilities to Compliance.

The Compliance Function must, at a minimum:

assist the Board and senior management in implementing the Compliance Policy;
identify and assess compliance risk;
analyse compliance risks associated with existing and new products/processes;
monitor new products intensively for at least the first six months;
undertake representative compliance testing;
report compliance failures;
ensure timely implementation of RBI supervisory directions;
monitor Risk Mitigation Plans/Monitorable Action Plans;
coordinate communication of RBI inspection compliance; and
oversee regulatory requirements arising from other regulators.

The requirement concerning new products is particularly noteworthy. Compliance is expected to participate before launch and then continue intensive monitoring for at least six months.

This establishes a preventive compliance model, rather than a purely detective one.

8. Compliance Testing

The Compliance Function must conduct sufficient and representative compliance testing, with results reported to senior management.

Compliance failures must also be circulated among staff together with preventive instructions, and staff accountability for major compliance failures must be examined.

This creates three distinct layers:

Identification → Testing → Corrective/Preventive Action

An effective NBFC compliance framework should therefore maintain documented evidence of:

testing undertaken;
sample selection;
exceptions identified;
root-cause analysis;
responsible personnel;
corrective action;
timelines; and
closure validation.

9. Internal Audit Interface

Compliance risk must form part of the Internal Audit risk assessment framework, while the Compliance Function itself must be subject to regular internal audit.

The CCO must be informed of audit findings concerning compliance.

This creates an important feedback loop:

Compliance monitoring → Internal Audit → Audit findings → CCO → Compliance risk assessment → Corrective action

The Compliance Function therefore cannot operate in isolation from Internal Audit and enterprise risk management.

10. Chief Compliance Officer – Major Governance Changes

The CCO provisions are among the most consequential elements of the Directions.

Appointment

The CCO must be selected through a defined process based on recommendations of a committee constituted by the Board/ACB, with the final appointment decision resting with the Board/ACB. External recruitment is expressly permitted.

The CCO must possess:

a clean track record;
unquestionable integrity;
industry understanding;
knowledge of risk management;
knowledge of regulations and legal requirements; and
sensitivity to supervisory expectations.

Tenure

The CCO must ordinarily have a minimum fixed tenure of three years.

The Board/ACB may relax this by one year in exceptional circumstances, subject to appropriate succession planning.

Premature transfer or removal is permitted only in exceptional circumstances with the explicit prior approval of the Board/ACB and after a defined and transparent internal process.

This is a significant safeguard against the possibility that compliance independence could be compromised through arbitrary changes in the CCO's position.

11. CCO Seniority and Reporting

The CCO must be a senior executive positioned not below two levels from the CEO. For Middle Layer NBFCs, this requirement may be relaxed by one additional level.

The CCO must have direct reporting lines to:

the MD & CEO; and/or
the Board/ACB.

Where the CCO reports to the MD & CEO, the Board/ACB must meet the CCO quarterly on a one-to-one basis, without senior management, including the MD & CEO.

The Board/ACB must also review the CCO's performance appraisal.

This is a strong governance mechanism intended to preserve the CCO's ability to communicate concerns directly to the Board.

12. Prohibition on "Dual Hatting"

The Directions expressly prohibit dual hatting where the CCO has responsibilities creating conflicts of interest, particularly responsibilities relating to business.

The CCO should generally not be a member of committees dealing with matters such as purchases or sanctions where this could conflict with the CCO's compliance role. If the CCO participates, the role is restricted to an advisory capacity.

This provision is particularly relevant for NBFCs where the compliance function has historically been combined with legal, risk, secretarial or business responsibilities.

Existing organisational structures may therefore need to be reassessed.

13. Direct Access to RBI and Regulators

The CCO is required to have the ability to exercise independent judgment and communicate directly with regulators and supervisors.

The CCO is also the nodal point of contact between the NBFC and regulators/supervisors and must participate in structured or regular discussions with RBI.

Further, RBI must receive prior intimation before appointment, premature transfer, resignation, early retirement, removal or other changes concerning the CCO's tenure. Appointment information must include the candidate's profile and a Fit and Proper certification by the MD & CEO.

14. New Product Governance

The CCO must be a member of the new product committee(s).

If no such committee exists, the CCO must evaluate all new products before launch.

This effectively embeds compliance into the product approval lifecycle.

NBFCs should therefore consider establishing a formal New Product Approval Process, incorporating:

Business proposal → Risk assessment → Compliance assessment → Legal review → Technology assessment → Management approval → Launch → Six-month enhanced monitoring.

15. Technology-Enabled Compliance

The Directions require NBFCs to implement comprehensive, integrated, enterprise-wide and workflow-based compliance solutions.

The technology framework should provide for:

stakeholder communication and collaboration;
identification and assessment of compliance requirements;
compliance monitoring and management;
escalation of non-compliance;
recording of approvals for deviations/delays; and
a unified dashboard for senior management.

This is an important development because it suggests a move away from spreadsheet-driven and manually maintained compliance systems towards technology-enabled compliance management.

16. Repeal and Transitional Considerations

The Directions repeal the existing Directions, instructions and guidelines relating to the Compliance Function applicable to NBFCs.

However, actions already taken or initiated under the repealed framework continue to be governed by the earlier provisions. Existing rights, liabilities, penalties, investigations and proceedings are similarly preserved.

The new Directions are also in addition to other applicable laws, rules, regulations and directions, and do not derogate from them.

17. Key Compliance Implications for an NBFC

An NBFC covered by these Directions should undertake a structured gap assessment immediately.

Area	Key Requirement	Recommended Action
Compliance Policy	Board-approved and annually reviewed	Review/revise policy
Compliance Risk	Annual assessment	Establish documented risk assessment
Board Oversight	Periodic compliance review	Strengthen Board/ACB reporting
CCO	Fixed minimum tenure	Review appointment terms
CCO Independence	Direct access/reporting	Review reporting structure
Dual Hatting	Conflicts prohibited	Review CCO responsibilities
Compliance Testing	Representative testing	Establish formal testing programme
New Products	CCO evaluation + six-month monitoring	Formalise NPA framework
RBI Directions	Time-bound implementation	Establish regulatory action tracker
Audit	Compliance risk in Internal Audit	Align Audit Plan
Technology	Integrated workflow-based system	Assess compliance technology
Training	Regulatory dissemination	Establish structured training programme
Succession	Avoid skill gaps	Develop compliance succession plan

18. Recommended Immediate Action Plan

I would recommend that an NBFC undertake the following in six stages:

Stage 1 – Regulatory Gap Assessment

Map each requirement of the 2026 Directions against the existing compliance framework and identify gaps.

Stage 2 – CCO Assessment

Review:

designation and seniority;
reporting structure;
tenure;
independence;
dual-hatting;
Board/ACB access;
regulatory interaction rights; and
performance appraisal mechanism.

Stage 3 – Policy Review

Revise the Board-approved Compliance Policy to specifically address all requirements under paragraphs 8 and 9 of the Directions.

Stage 4 – Compliance Operating Model

Document:

compliance ownership;
Compliance Function oversight;
testing methodology;
regulatory change management;
escalation mechanisms;
exception management;
new-product compliance assessment; and
RBI inspection/action-plan monitoring.

Stage 5 – Board Governance

Introduce a structured Board/ACB Compliance Dashboard covering:

compliance status;
overdue compliances;
material exceptions;
compliance risk profile;
regulatory changes;
RBI inspection observations;
corrective actions;
new product compliance reviews; and
significant compliance incidents.

Stage 6 – Technology Assessment

Evaluate whether the existing compliance-management system can provide the enterprise-wide workflow, escalation, deviation approval and dashboard capabilities required by the Directions.

19. Overall Professional Assessment

The 2026 Directions represent a material elevation of the compliance function within the governance architecture of covered NBFCs.

The central regulatory message is that compliance is no longer to be viewed as a periodic checklist or post-facto control mechanism. Instead, RBI expects compliance to operate as an independent, adequately resourced, risk-sensitive and technology-enabled function that is embedded into the organisation's decision-making processes.

The most significant areas requiring management attention are likely to be:

independence and stature of the CCO;
elimination of conflicts and dual-hatting;
Board/ACB oversight;
annual compliance-risk assessment;
documented compliance testing;
integration of compliance into new-product approval;
monitoring of RBI supervisory observations and action plans;
integration with Internal Audit and risk management; and
implementation of an enterprise-wide technology-enabled compliance system.

For a covered NBFC, the appropriate response should therefore be a formal implementation and gap-remediation programme, rather than merely updating the Compliance Policy.

In conclusion, the Directions materially strengthen the three lines of defence by giving the Compliance Function greater independence, authority and Board access while simultaneously increasing the accountability of senior management and business functions for compliance. Their successful implementation will require corresponding changes not only to policies and procedures, but also to organisational structure, governance practices, reporting mechanisms, product-approval processes, employee accountability and technology infrastructure.

Saturday, 15 August 2026

A Shot at History

A Shot at History: My Obsessive Journey to Olympic Gold — Abhinav Bindra

Abhinav Bindra’s A Shot at History: My Obsessive Journey to Olympic Gold, written with Rudrangshu Mukherjee, is much more than the conventional autobiography of a sporting champion. It is, at once, a chronicle of an extraordinary sporting career, a psychological study of obsession and perfectionism, and an unusually candid meditation on what it means to pursue excellence in an environment where success is measured in fractions of a point.

Bindra’s achievement needs little embellishment. At the 2008 Beijing Olympics, he became India’s first individual Olympic gold medallist, winning the 10-metre air rifle event in a competition decided by extraordinarily narrow margins. Yet the real fascination of the book lies not in the medal itself, but in everything that preceded it: the years of training, technological experimentation, physical and mental conditioning, disappointments, failures and the almost monastic dedication with which Bindra approached his sport.

The book begins to acquire its distinctive character precisely because Bindra refuses to present the journey as a straightforward tale of triumph. There is no convenient narrative in which talent encounters opportunity and inevitably produces glory. Instead, we encounter an athlete consumed by the pursuit of perfection, repeatedly questioning himself, changing his methods and learning from defeat. His journey is consequently as much inward as it is athletic.

The making of a champion

Bindra’s introduction to shooting and his subsequent development reveal how profoundly different elite sport can be from the recreational pursuit of a game. Shooting, in particular, demands a curious combination of physical control and psychological composure. The athlete must master breathing, posture, concentration, trigger control and, above all, the ability to remain emotionally detached when everything is at stake.

Bindra understood this early. He approached shooting almost scientifically, examining every variable that might influence performance. Equipment, technique, nutrition, fitness, psychology and training methodology all became components of a larger experiment whose objective was perfection.

This aspect of the narrative is particularly revealing. Bindra was not content merely to train harder; he wanted to understand why he succeeded or failed. His approach was intensely analytical, sometimes bordering on obsessive, and it eventually led him to seek expertise and training beyond India. His exposure to sophisticated sporting systems overseas broadened his understanding of what elite performance required.

The book therefore offers an implicit critique of the traditional Indian sporting ecosystem. Bindra's success was achieved despite institutional shortcomings as much as because of institutional support. His story demonstrates the enormous importance of professional coaching, sports science, technology, infrastructure and psychological preparation in modern competitive sport.

Obsession as both strength and burden

The most interesting dimension of A Shot at History is perhaps Bindra’s treatment of obsession.

The title itself captures the paradox. To become a champion, one must possess an extraordinary degree of commitment. But the same obsession that propels an athlete towards greatness can also become psychologically exhausting.

Bindra repeatedly demonstrates how completely shooting came to dominate his life. Every training session, every competition and every disappointing score acquired enormous significance. The pursuit of perfection was not simply something he did; it became central to how he defined himself.

This makes the book considerably more sophisticated than a conventional inspirational sports memoir. Bindra does not merely tell us that dedication produces success. He makes us confront the darker side of dedication: anxiety, self-doubt, disappointment and the fear that one's entire identity may be reduced to performance.

There is an important lesson here. Excellence does not necessarily produce happiness. Winning a gold medal may fulfil a lifelong ambition, but it does not magically resolve the insecurities and questions that accompany the pursuit of that ambition.

The psychology of competition

Shooting provides Bindra with an especially powerful setting in which to examine the psychology of competition. Unlike team sports, where responsibility is distributed among several players, shooting ultimately places the competitor alone with the target, the weapon and his own mind.

The smallest psychological disturbance can therefore become consequential.

Bindra's account repeatedly returns to concentration, emotional control and the ability to remain present. A competitor cannot afford to dwell on the previous shot or anticipate the next one. Each shot demands its own moment of complete concentration.

This makes the book relevant even to readers who have no interest in shooting. The principles apply equally to examinations, business, professional careers, artistic pursuits and almost any endeavour in which performance under pressure matters.

One of the book's most valuable insights is that preparation cannot guarantee victory. One can prepare meticulously and still lose. The athlete must therefore learn not merely how to succeed, but how to absorb failure without allowing it to destroy confidence.

Beijing 2008: the culmination

Naturally, the Beijing Olympics form the emotional centre of the narrative.

By the time Bindra arrives at the Games, the reader understands the enormous psychological investment behind those few minutes of competition. The final itself is described not as a cinematic moment of effortless heroism but as the culmination of years of preparation, experimentation and mental conditioning.

The eventual gold medal was decided by an extraordinarily narrow margin, which makes the achievement all the more remarkable. Yet Bindra's account avoids excessive self-congratulation. The emphasis remains on the process rather than the medal.

That distinction is important. The gold medal is the visible historical event; the real story is everything invisible that made it possible.

The title A Shot at History consequently operates on several levels. Bindra literally had a shot at an Olympic medal, but he also had a shot at redefining Indian sporting history. His victory demonstrated that an Indian athlete could achieve individual Olympic gold in an intensely competitive discipline through systematic preparation and professional excellence.

Failure is as important as victory

One of the book's greatest strengths is Bindra's willingness to discuss failure.

The narrative does not conveniently end with Beijing. His later experiences demonstrate how quickly sporting glory can become yesterday's achievement. An Olympic champion must start again, and the standards expected of him become even higher.

His subsequent Olympic experiences are therefore important because they undermine the comforting assumption that a champion remains permanently victorious. Sport is transient. Form fluctuates. Rivals emerge. The body changes. Psychology changes. Yesterday's achievement offers no guarantee of tomorrow's success.

Bindra's failures consequently become almost as instructive as his victories. They reveal the difficulty of maintaining excellence after reaching the summit.

A critique of Indian sporting culture

The book is also valuable as a commentary on Indian sport.

Bindra's career unfolded at a time when India's sporting infrastructure was improving but remained considerably behind that of many leading sporting nations. His experiences expose deficiencies in coaching, administration, scientific support and sporting culture.

Yet he does not simply blame the system. Instead, his own career illustrates what can happen when an athlete takes responsibility for assembling the ecosystem necessary for success.

This is perhaps one of the book's most significant contributions. Bindra's gold was not merely the product of physical talent. It emerged from a multidisciplinary approach involving coaches, sports scientists, psychologists, equipment specialists and an enormous amount of individual experimentation.

In this sense, the book anticipated the increasingly scientific nature of elite sport.

The human being behind the medal

Ultimately, however, A Shot at History is most memorable because it allows the reader to see the human being behind the Olympic champion.

The public image of an Olympic gold medallist is necessarily simplified: champion, winner, national hero. Bindra's memoir complicates that image. Beneath the medal is an individual who experiences fear, frustration, doubt and loneliness, and who continually questions whether he is good enough.

That vulnerability makes the book more compelling rather than less heroic.

Bindra's greatest achievement may therefore not be the portrayal of himself as an extraordinary man, but his willingness to acknowledge how ordinary human emotions persist even at the pinnacle of achievement.

Writing and overall impression

The prose is direct, reflective and analytical rather than flamboyant. The collaboration with Rudrangshu Mukherjee gives the narrative a broader historical and biographical perspective, while Bindra's own experiences provide its emotional core.

At times, the intense focus on training, equipment and performance methodology may feel demanding for readers unfamiliar with shooting. But these passages are also integral to understanding Bindra's philosophy. They reveal the extraordinary attention to detail required to compete at the highest level.

The book succeeds because it does not reduce sporting success to a motivational slogan. It presents excellence as complicated, expensive and psychologically demanding.

Verdict

A Shot at History is an absorbing account of one of India's most remarkable sporting achievements, but its significance extends well beyond the shooting range. It is a book about discipline, obsession, failure, resilience and the relentless pursuit of perfection.

Abhinav Bindra's Olympic gold may have lasted for one unforgettable moment, but this book reminds us that such moments are manufactured through years of largely invisible work. The medal was won in Beijing; the journey towards it was forged through thousands of days of preparation, doubt and sacrifice.

What makes the memoir ultimately inspiring is not the simple fact that Bindra won. It is that he allows us to understand what winning cost, what losing taught him, and why the pursuit of excellence can be both exhilarating and consuming.

For anyone interested in sport, psychology, achievement or the discipline required to master a craft, A Shot at History is an exceptionally worthwhile read. It is not merely the story of a gold medal; it is the story of the mind that learned how to take the shot when history was waiting.

Friday, 14 August 2026

Stress Testing for Commodity Derivatives Segment

1. Executive Summary

The circular issued by the Securities and Exchange Board of India (SEBI) on 12 August 2026 introduces an important change to the stress-testing methodology applicable to the Commodity Derivatives Segment of recognised clearing corporations.

The principal amendment concerns the Z-score threshold used in historical scenario stress testing for determining the Core Settlement Guarantee Fund (Core SGF). SEBI has reduced the threshold from 10 to 5. Consequently, price movements corresponding to a Z-score beyond 5, rather than beyond 10, will be replaced by the Z-score threshold in the calculation of peak historical returns.

The amendment takes immediate effect and is expressly stated to have been introduced following stakeholder representations, recommendations of the Risk Management Review Committee (RMRC) and public comments, with the stated objective of facilitating Ease of Doing Business.

2. Regulatory Background

The circular modifies the provisions contained in Paragraph 22 of Annexure O of SEBI's Master Circular for the Commodity Derivatives Segment dated 4 August 2023, which prescribes the methodology for Standardized Stress Testing for Commodity Derivatives and, in particular, the requirements relating to the Core SGF.

Under the existing framework, historical scenarios include the Peak Historical Return, under which the price movement of each underlying over the applicable Margin Period of Risk (MPOR) is considered over the preceding 15 years. Both the maximum percentage rise and maximum percentage fall are considered.

3. Key Amendment

The most significant change is:

Particulars	Earlier provision	Revised provision
Z-score threshold	10	5
Historical period	15 years	15 years
MPOR-based price movement	Applicable	Continues
Mean and sigma for Z-score	Applicable MPOR returns over 15 years	No change
Effective date	—	Immediate

Under the earlier methodology, price movements corresponding to a Z-score of 10 replaced extreme price movements exceeding that threshold. The amended framework reduces this to a Z-score of 5.

Importantly, the 15-year historical observation period has not been changed. Nor has SEBI altered the underlying methodology for calculating the Z-score, which continues to use the mean and sigma of returns over the applicable MPOR across the 15-year period.

4. Significance of Reducing the Z-score from 10 to 5

This is a material risk-management parameter change.

A Z-score measures the magnitude of an observed price movement relative to the historical distribution of returns. Under the earlier framework, only extremely remote price movements beyond the 10-standard-deviation threshold were capped/replaced.

By lowering the threshold to 5 standard deviations, SEBI is effectively imposing a more conservative cap on extreme historical price observations used in this particular stress-testing scenario.

Thus, while the numerical change from 10 to 5 may appear straightforward, its practical impact will depend upon the historical return distributions of individual commodities and their respective MPORs.

The amendment therefore does not simply reduce the severity of stress testing. Rather, it changes the treatment of extreme historical observations and standardises the manner in which exceptionally large historical movements influence the stress-testing calculation.

5. Impact on Clearing Corporations

The circular is specifically addressed to all recognised clearing corporations having a Commodity Derivatives Segment.

Such clearing corporations will need to review and, where necessary, modify their stress-testing systems and calculations to ensure that:

The Z-score threshold of 5 is incorporated in place of 10.
Historical price movements continue to be evaluated over the prescribed 15-year period.
The applicable MPOR continues to be correctly applied.
Mean and sigma continue to be calculated in accordance with the prescribed methodology.
The revised stress-test results are appropriately reflected in the determination and monitoring of the Core SGF.
Relevant risk-management systems, models, controls and documentation are updated accordingly.

Given that the circular has immediate effect, implementation should not be deferred to a future compliance cycle.

6. Impact on the Core Settlement Guarantee Fund

The Core SGF is designed to provide financial resources to meet obligations arising from clearing and settlement in circumstances involving member defaults and adverse market conditions.

Since the circular changes an input into the standardised stress-testing framework, the revised methodology could potentially affect the stress-test outcomes used for assessing the adequacy of the Core SGF.

However, the circular itself does not prescribe a percentage increase or decrease in the Core SGF. Therefore, it would be inappropriate to conclude from the circular alone that the Core SGF requirement will necessarily increase or decrease.

The actual financial impact will depend upon:

commodity-wise historical return distributions;
MPOR applicable to each commodity;
calculated mean and sigma;
frequency and magnitude of extreme historical price movements; and
the resulting stress-test requirement.

Accordingly, each clearing corporation should undertake a commodity-wise impact assessment rather than assuming a uniform effect.

7. Regulatory Rationale

SEBI states that the amendment follows:

representations received from stakeholders;
recommendations of the Risk Management Review Committee; and
public comments received during the regulatory process.

SEBI has specifically linked the modification to the objective of facilitating Ease of Doing Business.

This suggests that the regulator considered the existing Z-score threshold to warrant recalibration, presumably after considering stakeholder feedback and the recommendations of its risk-management review mechanism.

The circular itself, however, does not provide quantitative impact analysis or the rationale for selecting 5 rather than 10. Therefore, any further explanation regarding the statistical or economic reasoning behind the specific threshold of 5 would require reference to the underlying RMRC recommendations or SEBI's consultation material, which is not contained in the uploaded circular.

8. Compliance Implications

From a compliance perspective, the amendment should be treated as an immediate regulatory change requiring system and process implementation.

A clearing corporation's compliance/risk-management team should consider undertaking the following:

Immediate actions

Identify all systems and reports incorporating the Z-score threshold.
Replace the existing threshold of 10 with 5.
Validate the revised calculations.
Conduct parallel testing of the old and revised methodology.
Assess the impact on commodity-wise stress-test results.
Evaluate the consequential impact on Core SGF adequacy.
Update internal risk-management documentation and operating procedures.
Ensure appropriate governance/approval of the system change.
Maintain an audit trail demonstrating implementation of the circular.

Governance actions

The change should ideally be placed before the appropriate Risk Management Committee / Board-level committee, wherever required under the clearing corporation's governance framework, particularly if the revised methodology materially changes risk parameters or SGF requirements.

9. Key Risk Considerations

The most important implementation risk is not the textual amendment itself but the possibility of incorrect system implementation.

Particular attention should be paid to:

inadvertent retention of the Z-score 10 threshold in legacy systems;
incorrect treatment of negative versus positive price movements;
incorrect MPOR application;
errors in calculating mean and standard deviation;
incorrect treatment of historical observations exceeding the revised threshold;
discrepancies between automated systems and manually prepared risk reports; and
failure to update internal documentation and controls.

Because the amendment applies to all commodities, implementation should be validated across the entire commodity universe rather than tested only for selected commodities.

10. Overall Assessment

The circular represents a targeted amendment to the risk-management framework for commodity derivatives, rather than a wholesale revision of the stress-testing methodology.

The principal regulatory change is the reduction of the Z-score threshold from 10 to 5, while the broader architecture of the historical stress-testing framework—including the 15-year historical period and MPOR-based return calculation—remains intact.

From a regulatory-compliance perspective, the amendment is material and requires immediate attention, particularly for recognised clearing corporations operating commodity derivatives segments. The actual quantitative effect on stress-test requirements and Core SGF, however, cannot be determined from the circular alone and should be established through a commodity-wise recalculation using the revised Z-score threshold.

Conclusion

In substance, SEBI has recalibrated the treatment of extreme historical price movements in commodity-derivatives stress testing by replacing the Z-score threshold of 10 with 5. The change is effective immediately and is intended, among other things, to facilitate Ease of Doing Business.

For clearing corporations, the immediate priority should therefore be system implementation, validation, commodity-wise impact assessment and reassessment of Core SGF implications, supported by appropriate risk-management and governance documentation.

Wednesday, 12 August 2026

RBI (Commercial Banks – Interest Rate on Deposits) Second Amendment Directions, 2026

The Reserve Bank of India has issued the Reserve Bank of India (Commercial Banks – Interest Rate on Deposits) Second Amendment Directions, 2026, vide circular RBI/2026-27/214 dated July 30, 2026. The amendments revise the regulatory framework governing interest rates on rupee bulk deposits and introduce greater transparency in the disclosure of deposit rates.

1. Effective Date

The amended provisions will come into force with effect from October 1, 2026. Banks therefore have a limited implementation window to review their deposit-rate policies, website disclosures, operational processes and systems.

2. Advance Disclosure of Deposit Interest Rates

A significant amendment relates to the manner in which deposit interest rates are disclosed.

Interest rates payable on deposits, including bulk deposits, must strictly correspond with the schedule of interest rates disclosed in advance on the bank's website. In the case of bulk deposits, the applicable rates must be disclosed on the website at 10:00 a.m. on each business day, with a grace period of 10 minutes, i.e. disclosure must be completed by 10:10 a.m.

Regulatory significance:
This introduces a much more precise and time-bound disclosure obligation for bulk deposit rates. Banks will need to ensure that the website reflects the applicable rates within the stipulated daily window and that there is appropriate internal control over any changes to rates.

3. Uniformity and Non-Discrimination

The amended provision requires interest rates offered on deposits, including bulk deposits, to be uniform across all branches and for all customers. It further prohibits discrimination in interest paid between deposits of similar amounts accepted on the same date at any office of the bank.

This provision strengthens the principles of transparency, consistency and non-discriminatory treatment of depositors.

From an operational perspective, banks should ensure that branch-level discretion does not result in rates that differ from the rates officially disclosed and applicable to similarly situated deposits.

4. Differential Rates for Bulk Deposits Based on LCR Run-Off Rates

An important new flexibility has been introduced in relation to bulk deposits.

Banks are permitted to offer differential interest rates on bulk deposits by taking into account the differential run-off rates applicable to deposits or unsecured wholesale funding under the Liquidity Coverage Ratio (LCR) framework. The relevant LCR provisions are contained in the RBI's Commercial Banks – Asset Liability Management Directions, 2025.

This provision is particularly significant because it creates a regulatory linkage between deposit pricing and liquidity characteristics.

In other words, banks can take into consideration the liquidity impact of particular categories of bulk deposits when determining the interest rate offered. This gives banks greater flexibility to price deposits in accordance with their liquidity-risk profile.

5. Extension to Non-Resident Rupee Deposits

The same flexibility concerning LCR-related differential run-off rates has also been extended to rupee deposits of non-residents.

The amended framework permits differential interest rates on bulk deposits by considering the applicable differential run-off rates under the LCR framework.

Thus, the amendment is not confined to domestic rupee deposits; its implications also extend to the pricing of relevant non-resident rupee deposits.

Key Regulatory Implications

Area	Impact of Amendment
Deposit rate disclosure	Rates must be disclosed in advance on the bank's website
Bulk deposit rates	Daily disclosure required at 10:00 a.m., with grace period up to 10:10 a.m.
Branch-level pricing	Rates must be uniform across branches
Customer treatment	Similar deposits accepted on the same date cannot receive discriminatory rates
Bulk deposit pricing	Differential rates permitted based on applicable LCR run-off characteristics
Non-resident deposits	Similar LCR-based pricing flexibility extended to relevant bulk deposits
Technology/process controls	Banks will need robust controls to ensure timely and accurate website updates
Compliance monitoring	Greater importance for internal audit, compliance and supervisory review

6. Overall Assessment

The amendment represents a dual approach of greater transparency coupled with calibrated pricing flexibility.

On one hand, RBI has tightened the transparency and consistency requirements by mandating advance disclosure, a specific daily disclosure time for bulk deposit rates, uniformity across branches and non-discrimination among comparable deposits. On the other hand, banks have been given greater flexibility to differentiate bulk-deposit pricing based on the liquidity characteristics reflected through the LCR framework.

The amendment therefore appears designed to ensure that deposit pricing remains transparent and non-discriminatory while allowing banks to manage liquidity costs and risks more effectively.

7. Recommended Action Points for Banks

Banks should, before October 1, 2026, undertake the following:

Review and amend their deposit interest-rate policies to incorporate the revised provisions.
Establish a daily control mechanism ensuring that bulk-deposit rates are published by 10:10 a.m. on every business day.
Ensure that the rates displayed on the website are consistent with the rates actually applied by branches and other banking offices.
Review systems to prevent unauthorised or inconsistent branch-level pricing.
Establish controls to ensure that comparable deposits accepted on the same date receive non-discriminatory treatment.
Incorporate the relevant LCR run-off characteristics into the framework for pricing eligible bulk deposits.
Review the pricing framework applicable to non-resident rupee deposits.
Maintain an appropriate audit trail of rate changes and website disclosures to demonstrate regulatory compliance.
Align the roles of the Treasury/ALM, Deposit, IT, Compliance, Risk Management and Internal Audit functions.
Conduct a pre-implementation compliance review before the effective date.

Conclusion

The July 30, 2026 amendment is important from both a deposit-pricing and liquidity-management perspective. It increases regulatory discipline around public disclosure and uniform application of deposit rates, while simultaneously permitting banks to factor liquidity-risk considerations into the pricing of bulk deposits. The most immediate compliance priority is the implementation of the 10:00 a.m.–10:10 a.m. daily disclosure requirement for bulk deposit rates, together with appropriate system and governance controls to ensure consistency between published and applied rates.

Tuesday, 11 August 2026

Amendment to SEBI (Issue and Listing of Municipal Debt Securities) Regulations, 2015

SEBI circular dated 11 August 2026, concerning amendments and operational changes relating to the SEBI (Issue and Listing of Municipal Debt Securities) Regulations, 2015 (ILMDS Regulations)

1. Executive Summary

The circular introduces important operational changes for municipal debt securities, particularly in relation to:

Face value and trading lot of privately placed municipal debt securities.
A two-step escrow mechanism for pooled finance vehicles/SPVs established under the Pooled Finance Development Fund Scheme.
Additional forms of credit enhancement available to pooled finance vehicles.
Relaxation of timelines for financial-result submissions by municipalities.
Immediate applicability of the circular.

The overall regulatory approach appears aimed at making municipal debt issuance more practical while strengthening mechanisms for investor protection and repayment security.

2. Face Value of Municipal Debt Securities

For municipal debt securities issued through private placement, the face value of each security may now be ₹1,00,000 or ₹10,000, as considered appropriate. However, securities having a face value of ₹10,000 must have:

a fixed maturity; and
no structured obligations.

Further, where such municipal debt securities are listed and traded on a stock exchange, the trading lot must always equal the face value of the security. These requirements apply specifically to private placements and do not apply to public issues.

Regulatory significance

This is a significant operational relaxation because the availability of a ₹10,000 denomination can potentially broaden accessibility to municipal debt securities in the private-placement market.

However, SEBI has attached safeguards to the lower denomination. The restriction against structured obligations and the requirement of fixed maturity reduce the complexity and potential risk associated with smaller-denomination instruments.

Compliance implication: Issuers undertaking private placements should ensure that the face value, maturity structure and trading lot are correctly reflected in the offer document/placement memorandum and listing documentation.

3. Two-Step Escrow Mechanism for Pooled Finance Vehicles

A major change concerns municipal debt securities issued through a pooled finance vehicle/SPV established under the Pooled Finance Development Fund Scheme of the Government of India.

The constituent municipalities must create and comply with the prescribed accounts. In addition, the SPV/pooled finance vehicle must maintain:

an Interest Payment Account, and
a Sinking Fund Account.

Funds are to be transferred from the corresponding accounts maintained by the constituent municipalities to the accounts maintained by the SPV, in accordance with the agreement between the SPV and the constituent municipalities.

A particularly important requirement is that the SPV must throughout the tenure of the municipal debt securities maintain an amount equivalent to one year's interest obligation in the Interest Payment Account.

Risk-management significance

This provision materially strengthens the payment-security architecture for municipal bonds issued through pooled structures.

The requirement for maintaining one year's interest obligation provides a dedicated liquidity buffer, thereby reducing the possibility that temporary cash-flow mismatches at the constituent-municipality level could immediately translate into an interest-payment default.

From an investor-protection perspective, this is one of the more consequential provisions of the circular.

4. Permitted Credit Enhancement Mechanisms

SEBI has expressly identified several forms of credit enhancement that may be used by an SPV/pooled finance vehicle to improve its credit rating and provide greater investor protection.

These include:

additional cash collateral;
programme equity contributed by the State Government;
access to State Finance Commission devolutions to Urban Local Bodies;
full or partial credit guarantees from a highly rated Development Finance Institution or multilateral institution; and
other appropriate credit-enhancement structures.

Analysis

The provision is important because municipal borrowing capacity is closely linked to perceived credit quality. By expressly recognising multiple forms of credit enhancement, SEBI is facilitating structures through which the underlying credit risk can potentially be reduced.

The involvement of State Government support, Finance Commission-related flows and institutional guarantees could improve investor confidence and potentially facilitate better pricing and wider participation in municipal debt offerings.

At the same time, the effectiveness of such enhancement will depend upon the legal enforceability, adequacy, liquidity and reliability of the underlying support mechanism. Merely having a credit-enhancement provision does not, by itself, eliminate underlying municipal credit risk.

5. Relaxation of Financial-Result Submission Timelines

The circular provides a significant compliance relaxation for municipalities.

Previously, the applicable timelines were:

Financial information	Earlier timeline
Half-yearly unaudited financial results	Within 45 days of the end of the first half-year
Annual audited financial results	Within 60 days from the end of the financial year

SEBI has now extended these periods to:

Financial information	Revised timeline
Half-yearly unaudited financial results	Within 60 days of the end of the first half-year
Annual audited financial results	Within 90 days from the end of the financial year, along with the audit report

The results must continue to be submitted as soon as they are available, notwithstanding the outer time limits.

Rationale

SEBI specifically recognises the practical difficulties faced by municipalities in:

collecting financial data;
coordinating between departments; and
meeting disclosure requirements within the earlier timelines.

The extension therefore appears to be a practical compliance relaxation rather than a dilution of the disclosure requirement itself.

6. Impact on Municipalities

For municipalities with listed debt securities, the circular should reduce immediate compliance pressure, particularly concerning financial-result preparation and reporting.

The extended 60-day and 90-day periods provide additional time for:

consolidation of departmental information;
reconciliation of financial data;
completion of audit procedures;
internal approvals; and
preparation of exchange disclosures.

However, municipalities should not interpret the extended deadline as justification for delaying preparation. The requirement remains to submit the results as soon as they are available.

7. Impact on Investors

From an investor perspective, the circular has both positive and potentially mixed implications.

Positive aspects include:

stronger escrow arrangements for pooled finance structures;
maintenance of a one-year interest buffer;
availability of additional credit-enhancement mechanisms;
greater clarity regarding denomination and trading lots.

The principal concern is the extension of financial-reporting timelines. Investors will potentially receive annual audited financial information later than under the earlier framework.

Nevertheless, SEBI appears to have balanced this concern against the practical difficulties municipalities face in producing timely and reliable financial information.

8. Key Compliance Action Points

Municipalities, pooled finance vehicles, SPVs, merchant bankers and other intermediaries should consider the following actions:

For municipalities:

Review existing municipal debt documentation in light of the revised requirements.
Reassess internal systems for maintaining interest-payment and sinking-fund accounts.
Establish an internal calendar based on the revised 60-day half-yearly and 90-day annual reporting deadlines.
Ensure financial results are submitted immediately once available rather than automatically waiting until the outer deadline.
Review agreements with pooled finance vehicles/SPVs for consistency with the revised escrow mechanism.

For pooled finance vehicles/SPVs:

Establish and maintain the prescribed Interest Payment Account and Sinking Fund Account.
Ensure appropriate fund-transfer mechanisms are incorporated into agreements with constituent municipalities.
Monitor maintenance of the one-year interest obligation throughout the tenure of the securities.
Evaluate suitable credit-enhancement arrangements.
Document the legal and operational enforceability of any State Government, institutional or other credit support.

For merchant bankers and professional advisers:

The revised provisions should be incorporated into transaction structuring, due diligence, placement documentation, escrow arrangements and compliance checklists.

9. Overall Assessment

The circular represents a pragmatic recalibration of the regulatory framework for municipal debt securities. It does not merely relax compliance requirements; it simultaneously introduces mechanisms intended to improve payment security and facilitate the development of the municipal bond market.

The most significant measures are the ₹10,000 denomination option for specified privately placed securities, the two-step escrow mechanism with a one-year interest reserve, and the recognition of multiple credit-enhancement mechanisms.

The extension of financial-result timelines from 45 to 60 days for half-yearly results and from 60 to 90 days for annual audited results is a meaningful operational relaxation for municipalities.

Overall, the circular appears designed to reduce operational barriers to municipal borrowing while strengthening the structural safeguards around repayment and investor protection. Since the provisions are stated to apply with immediate effect, affected municipalities, issuers, SPVs, stock exchanges, depositories and merchant bankers should review their existing processes and documentation without delay.