Saturday, 18 July 2026

RBI (Commercial Banks – Governance) Amendment Directions, 2026

Notification No. RBI/2026-27/177 dated 14 July 2026

Executive Summary

The Reserve Bank of India has issued the RBI (Commercial Banks – Governance) Amendment Directions, 2026 with the objective of streamlining Board governance and reducing the compliance burden on bank Boards. Instead of requiring numerous individual circulars to be placed before the Board, the RBI has consolidated these requirements into a structured framework consisting of:

Policies requiring Board approval;
Matters requiring Board approval, review or information; and
Matters that may be delegated to Board Committees.

The amendments become effective from 1 October 2026.

Background

The RBI observed that Boards were spending excessive time dealing with routine regulatory approvals arising from numerous circulars.

Accordingly, the amended framework seeks to:

improve Board effectiveness;
enable greater focus on strategy, risk and governance;
eliminate duplication across RBI circulars;
clearly distinguish Board responsibilities from management responsibilities; and
promote delegation to specialised Board Committees wherever appropriate.

Major Regulatory Changes

1. New Board Oversight Responsibilities

A new paragraph (11A) has been inserted requiring Boards to exercise oversight over:

Risk management systems and strategy;
Exposure to subsidiaries and related entities;
Compliance with corporate governance standards including committee composition, functioning and periodic reviews.

Practical implication

The emphasis shifts from merely approving policies to continuously supervising governance quality and enterprise-wide risk.

2. Deletion of Existing Board Requirements

Several earlier provisions (Paragraphs 14, 16, 17, 18 and 19) have been deleted and replaced by an entirely new governance architecture.

This eliminates scattered approval requirements under multiple RBI directions.

3. Introduction of a New Governance Framework

The Directions now introduce a dedicated section titled:

"Matters to be placed before the Board."

This framework classifies matters into:

A. Policies requiring Board approval

(Appendix I)

B. Matters requiring Board approval/review/information

(Appendix IIA)

C. Matters which may be delegated

(Appendix IIB)

The Board is also required to periodically review the delegation framework.

Key Governance Principles Introduced

The RBI has laid down important governance principles.

Board retains ultimate responsibility

Even where authority is delegated, responsibility remains with the Board.

Focus on Strategy

Boards should devote greater time to

strategic direction,
financial soundness,
governance,
compliance,
enterprise risk.

Better Board Agendas

The Chairperson now carries primary responsibility for:

agenda setting,
prioritisation,
ensuring quality discussions.

Information Flow

Management must provide timely and adequate information.

Boards may obtain independent external reports wherever required.

Periodic Review

Boards must regularly review

delegated powers,
agenda quality,
adequacy of information,
timeliness of circulation,
Board effectiveness.

Policies requiring Board Approval (Appendix I)

The Directions consolidate almost every major governance policy.

Important examples include:

Credit Policy
Investment Policy
Enterprise Risk Management Policy
Outsourcing Policy
Digital Banking Policy
IT Policy
Responsible Business Conduct Policy
Branch Authorisation Policy
Deposit Policy
Auditor Appointment Policy
Compensation Policy
CSR Policy
Compliance Policy
Whistle Blower Policy
Disclosure Policy
KYC Policy
Interest Rate Policy

For every policy RBI also specifies whether review or approval may be delegated to a committee.

Matters requiring Board Approval

Appendix IIA identifies significant decisions that must continue to come before the Board.

Illustrative matters include:

ICAAP
Capital Plan
Capital Instruments
Dividend declaration
Voluntary amalgamation
Appointment of MD & CEO
Appointment of CRO
Appointment of CCO
Appointment of Whole-Time Directors
Group structure decisions

These remain core Board responsibilities.

Matters for Board Review

The Board is required to periodically review matters such as:

subsidiaries;
concentration risk;
ICAAP;
compensation systems;
exposure management;
investment activities.

Matters for Information

Boards are also to receive regular reporting on:

compromise settlements;
customer service;
donations;
operational resilience;
loans to related parties;
stress testing;
information security;
major shareholder compliance.

Matters which may be Delegated

One of the most significant reforms is the detailed delegation framework.

Examples include delegation to:

Audit Committee
Risk Management Committee
Asset Liability Committee
Committee on Lending to Related Parties
Customer Service Committee
Management Committee
Other Board Committees

Delegable matters include:

Annual Audit Plan
LFAR review
Cyber security review
Branch expansion
Business Correspondent Model
Investment portfolio review
Base Rate review
MCLR review
Outsourcing oversight
Operational risk review
Fraud monitoring
Liquidity reporting

Applicability

The amendments apply to:

Public Sector Banks; and
Private Sector Banks through corresponding amendments, making the Board responsibilities and governance practices equally applicable, with necessary modifications (mutatis mutandis).

Practical Impact on Banks

The amendments are expected to:

reduce repetitive Board agenda items;
strengthen committee-based governance;
improve Board efficiency;
enable Boards to focus on strategic oversight rather than operational approvals;
enhance accountability by clearly defining matters reserved for the Board and those suitable for delegation;
simplify compliance by consolidating requirements dispersed across numerous RBI circulars and directions.

Action Points for Banks

Before 1 October 2026, banks should:

Review the Board Charter and governance framework.
Update the Schedule of Matters Reserved for the Board.
Amend the Charters of all Board Committees.
Revise delegation matrices in line with Appendices I, IIA and IIB.
Rationalise Board agenda templates.
Review all Board-approved policies against the new framework.
Train Directors and senior management on the revised governance architecture.
Align internal governance manuals, secretarial practices and Board calendars with the amended Directions.

Concluding Remarks

These Amendment Directions represent a significant shift in the RBI's approach to bank governance. Rather than increasing regulatory obligations, the RBI has sought to improve governance quality by simplifying procedural requirements and reinforcing the Board's strategic role. The framework encourages Boards to concentrate on long-term strategy, risk oversight, governance effectiveness and organisational resilience, while permitting routine operational matters to be handled by specialised Board Committees under an appropriate delegation framework. This marks a transition towards a more principles-based, efficient and internationally aligned governance model for commercial banks.

Friday, 17 July 2026

Prohibition on Import of Goods Produced Using Forced Labour

Executive Summary

The Directorate General of Foreign Trade (DGFT), through Notification No. 23/2026-27 dated 13 July 2026, has amended the Foreign Trade Policy (FTP), 2023 by inserting:

Paragraph 2.20B – Prohibition on import of goods produced or manufactured using forced labour.
Paragraph 11.64 – Definition of "Forced Labour" based on the ILO Forced Labour Convention, 1930 (No. 29).

The notification becomes effective after the expiry of 30 days from its publication in the Official Gazette, allowing importers a transition period to review their supply chains.

Background

Globally, several jurisdictions—including the United States, European Union and Canada—have strengthened restrictions on products linked to forced labour. India has now incorporated a similar framework into its Foreign Trade Policy.

Rather than imposing an immediate blanket prohibition on all imports, the notification empowers the Central Government to prohibit specific goods after appropriate enquiry and notification.

Key Amendments

1. Insertion of Para 2.20B

The new paragraph provides that:

Imports of goods produced or manufactured, wholly or partly, using forced labour are prohibited.
The Central Government may notify specific goods whose imports are prohibited.
DGFT may conduct enquiries into allegations of forced labour.
The detailed enquiry mechanism will be prescribed separately in the Handbook of Procedures (HBP).

This creates a statutory mechanism rather than a case-by-case administrative restriction.

2. Definition of Forced Labour

A new Paragraph 11.64 defines forced labour by adopting the internationally accepted definition contained in ILO Convention No. 29:

Work or service extracted from any person under the menace of penalty and for which the person has not voluntarily offered himself.

Using the ILO definition avoids ambiguity and aligns India's trade policy with internationally recognised labour standards.

Practical Implications

For Importers

This notification significantly elevates supply-chain compliance.

Importers should begin:

mapping overseas suppliers;
obtaining declarations regarding labour practices;
incorporating contractual clauses prohibiting forced labour;
maintaining documentary evidence of supplier compliance;
conducting enhanced due diligence for high-risk jurisdictions and industries.

Although the notification does not require immediate certifications, businesses should prepare for future enquiries by DGFT.

For Exporters

Indian exporters may indirectly benefit.

Many international buyers increasingly require suppliers to demonstrate ethical sourcing. India's adoption of similar standards may strengthen the credibility of Indian exports in global markets.

For Multinational Companies

Companies with international procurement operations should integrate this requirement into their:

ESG programmes;
supplier onboarding;
procurement policies;
vendor audits;
sustainability reporting.

Compliance Perspective

From a compliance standpoint, this notification shifts responsibility beyond customs documentation.

Organisations should consider:

reviewing procurement policies;
updating vendor due diligence questionnaires;
introducing supplier representations and warranties regarding labour standards;
strengthening internal compliance monitoring;
maintaining audit trails demonstrating reasonable due diligence.

Although the notification presently empowers the Government to prohibit specified imports, companies should not wait until goods are notified.

Legal Significance

The amendment is noteworthy because it:

aligns India's Foreign Trade Policy with international labour conventions;
provides statutory authority for import restrictions;
introduces an objective legal definition of forced labour;
enables DGFT to investigate allegations before imposing restrictions;
lays the foundation for future enforcement through the Handbook of Procedures.

Unlike some foreign regimes that presume certain goods are produced through forced labour, India's framework contemplates an enquiry before prohibiting imports.

Business Impact

Industries likely to face increased scrutiny include:

textiles and garments;
footwear;
agriculture and food processing;
seafood;
mining and minerals;
electronics and solar equipment;
leather products.

Importers sourcing from regions with documented labour concerns may experience enhanced compliance obligations.

Key Takeaways

DGFT has inserted Para 2.20B into the FTP, 2023, prohibiting imports of goods produced wholly or partly using forced labour.
A new Para 11.64 adopts the internationally recognised ILO definition of forced labour.
The Central Government may prohibit imports of specified goods through future notifications after conducting enquiries.
The notification becomes effective 30 days after publication in the Official Gazette.
Importers should use this transition period to strengthen supplier due diligence, contractual safeguards, and ESG compliance frameworks.

Overall Assessment

This notification represents a significant evolution in India's trade policy. While its immediate operational impact is limited by the need for subsequent notifications identifying prohibited goods and prescribing enquiry procedures, it establishes a clear legal basis for ethical trade enforcement. For compliance professionals, company secretaries, and international trade advisors, the focus should now shift from reactive customs compliance to proactive supply-chain governance and responsible sourcing practices.

Thursday, 16 July 2026

SEBI (Foreign Venture Capital Investors) (Amendment) Regulations, 2026

Document Title: Securities and Exchange Board of India (Foreign Venture Capital Investors) (Amendment) Regulations, 2026

Notification No.: SEBI/LAD-NRO/GN/309

Date of Notification: 3 July 2026

Effective Date: 180 days from the date of publication in the Official Gazette.

Executive Summary

The Securities and Exchange Board of India (SEBI) has issued the SEBI (Foreign Venture Capital Investors) (Amendment) Regulations, 2026 to rationalize the fee structure applicable to Foreign Venture Capital Investors (FVCIs). The amendment primarily replaces the historical US Dollar-denominated fees with Indian Rupee-equivalent fees, streamlines the timing of fee payment, and places explicit responsibilities upon Designated Depository Participants (DDPs) for remitting such fees to SEBI within prescribed timelines.

The amendment is administrative rather than substantive. It does not alter the eligibility, registration requirements, investment conditions, or regulatory obligations applicable to FVCIs.

Background

The principal regulations are:

SEBI (Foreign Venture Capital Investors) Regulations, 2000.

These regulations govern registration and supervision of Foreign Venture Capital Investors investing in Indian venture capital undertakings.

The present notification amends only the Second Schedule, which prescribes the fee structure, together with a minor amendment in Regulation 3(3).

Key Amendments

1. Removal of Reference to Fee Schedule in Regulation 3(3)

The amendment omits the words:

"by the fee specified in the Second Schedule and"

from Regulation 3(3).

Significance

This is a drafting amendment intended to align the regulation with the revised fee mechanism and eliminate redundant wording.

2. Registration Fee Converted from USD to INR

Earlier:

Registration fee:
US$ 2,500

Revised:

₹2,30,000 (or equivalent eligible foreign exchange)

Further, the fee is now payable:

prior to grant of Certificate of Registration

instead of

at the time of submission of the application form.

Practical Effect

This provides:

better certainty regarding payment timing;
payment only after approval is imminent;
avoidance of upfront fee payment at application stage.

3. Renewal Fee Rationalised

Earlier:

Renewal Fee:
US$100

Now:

₹9,000 (or equivalent eligible foreign exchange).

Impact

This merely converts the fee structure into INR without altering the renewal mechanism.

4. Delay Fees Revised

The amendment substitutes:

Earlier	Revised
US$5 per day	₹500 equivalent
Maximum US$150	Maximum ₹15,000 equivalent

Observation

The amendment standardises penalties in Indian Rupees, making compliance administration easier.

5. Complete Substitution of Clause (6)

The most operationally significant amendment is substitution of Clause (6).

The revised clause requires every Designated Depository Participant (DDP) to remit fees collected from FVCIs to SEBI in INR.

Initial Registration

DDP must remit:

within 5 working days
from grant of Certificate of Registration
together with prescribed information.

Renewal / Late Fees

DDP must remit:

within 5 working days
from receipt of fee
along with prescribed details.

Regulatory Intent

The amendment appears intended to:

simplify fee administration;
reduce dependence upon fluctuating USD values;
strengthen audit trail for fee remittances;
improve reconciliation between DDPs and SEBI;
ensure faster transfer of regulatory fees.

Compliance Implications

For Foreign Venture Capital Investors

FVCIs should:

note revised INR-denominated fee amounts;
budget registration and renewal costs accordingly;
ensure payment before registration is granted.

No additional compliance obligations are imposed.

For Designated Depository Participants

DDPs will need to:

revise internal operating procedures;
ensure remittance within five working days;
maintain documentation in SEBI-prescribed formats;
strengthen internal controls for fee collection and reporting.

The amendment imposes clearer operational responsibilities on DDPs.

Governance Perspective

From a governance standpoint, the amendment improves:

transparency;
accountability;
operational efficiency;
reconciliation of regulatory collections;
ease of supervision.

The revised framework reduces ambiguity regarding:

payment timelines,
payment currency,
remittance obligations.

Comparative Snapshot

Particular	Earlier Position	Amended Position
Registration Fee	US$2,500	₹2,30,000 equivalent
Renewal Fee	US$100	₹9,000 equivalent
Late Fee	US$5/day	₹500 equivalent/day
Maximum Late Fee	US$150	₹15,000 equivalent
Registration Fee Timing	At application	Prior to registration
DDP Remittance Timeline	Less explicit	Within 5 working days

Impact Assessment

Regulatory Impact: Low

Operational Impact: Moderate (primarily for DDPs)

Financial Impact: Minimal (fees are rationalised into INR rather than materially increased or decreased)

Compliance Burden: Neutral

Conclusion

The SEBI (Foreign Venture Capital Investors) (Amendment) Regulations, 2026 represent a targeted administrative reform rather than a substantive policy shift. By replacing US Dollar-based fees with Indian Rupee equivalents, clarifying the stage at which registration fees become payable, and prescribing definitive timelines for Designated Depository Participants to remit fees to SEBI, the amendment enhances administrative efficiency, improves regulatory oversight, and aligns fee collection with contemporary operational practices. It does not modify the regulatory framework governing FVCI eligibility, investment conditions, or registration criteria; instead, it modernises the fee administration process while promoting greater certainty, transparency, and ease of compliance.

Wednesday, 15 July 2026

Intraday borrowing facility availed by mutual funds

SEBI Circular No. HO/(92)2026-IMD-POD-2/I/16006/2026 dated July 10, 2026

Executive Summary

The Securities and Exchange Board of India (SEBI) has issued a significant circular introducing an intraday borrowing facility for mutual funds to address temporary liquidity mismatches arising primarily from differences in market settlement cycles. The circular follows the amendment to the SEBI (Mutual Funds) Regulations, 2026, notified on July 3, 2026, and supersedes the earlier borrowing guidelines contained in the SEBI Master Circular dated March 20, 2026 and SEBI Circular dated March 25, 2026.

Unlike conventional borrowing, which is tightly regulated and intended only for exceptional circumstances, the newly introduced framework allows same-day borrowings for specified operational purposes while ensuring that such borrowings do not expose investors to additional costs or undue risks.

The provisions shall become effective from September 1, 2026.

Background

Mutual fund schemes routinely experience temporary timing mismatches between cash inflows and payment obligations. Examples include:

Redemption proceeds becoming payable before settlement receipts are credited.
Investments requiring payment while subscription money is still under processing.
Margin obligations or foreign exchange settlements occurring before expected receipts.

Previously, AMCs often had to rely on overnight borrowing provisions or maintain higher idle liquidity. The new framework addresses these operational inefficiencies by permitting intraday borrowing, thereby improving liquidity management without compromising investor protection.

Key Provisions

1. Permitted Uses of Intraday Borrowing

Mutual Funds may avail intraday borrowings for the following purposes:

Payment of redemption proceeds to investors.
IDCW (Income Distribution cum Capital Withdrawal) payments.
Interest payments.
Settlement of investments made by schemes.
Mark-to-market (MTM) obligations.
Foreign exchange settlements.
Repayment of existing borrowings.

Analysis

SEBI has clearly limited the facility to operational liquidity requirements rather than allowing borrowings for portfolio leverage or speculative activities. The emphasis remains on facilitating smooth fund operations.

2. Limits on Quantum of Borrowing

The circular prescribes three categories:

(a) Guaranteed Receivables

Borrowing may be backed by receivables such as:

RBI settlements
Clearing Corporation inflows
Subscription amounts already credited into scheme bank accounts

(b) Non-Guaranteed Receivables

Borrowings may also be based upon receivables expected during the day, including:

Maturity proceeds
Settlement proceeds from:
- Non-convertible debentures (NCDs)
- Commercial Papers (CPs)
- Certificates of Deposit (CDs)
- OTC Swaps

provided such receivables are expected before the end of the day.

(c) Additional Borrowing

AMCs may borrow beyond the above receivables solely for meeting:

Redemption obligations
Other investor pay-outs permitted under Regulation 42(1).

Analysis

The framework balances operational flexibility with prudence by linking borrowing primarily to identifiable cash inflows while allowing limited additional borrowing to protect investor redemption rights.

3. Mandatory Same-Day Repayment

AMCs must ensure:

Entire intraday borrowing is repaid before the close of business.
If any borrowing extends overnight, it must comply with existing regulatory limits governing overnight borrowings.

Analysis

This is perhaps the most critical safeguard.

SEBI has ensured that the facility remains genuinely "intraday" and does not become an indirect route for longer-term leverage.

4. Governance Framework

Boards of:

Asset Management Companies (AMCs)
Trustees of Mutual Funds

must approve a formal policy governing intraday borrowing.

The policy should include:

Approval process
Monitoring mechanisms
Internal controls

The approved policy must also be hosted on the AMC's website.

Analysis

This strengthens corporate governance by ensuring board-level oversight and transparency.

5. Record Maintenance

AMCs are required to maintain scheme-wise documentation covering:

Nature of liquidity mismatch
Source of expected repayment
Supporting records for each borrowing transaction.

Analysis

This enhances auditability and regulatory supervision while enabling SEBI to monitor the appropriateness of facility usage.

6. Continued Regulatory Compliance

The circular clarifies that AMCs must continue complying with:

Clauses 6 and 7 of the Fourth Schedule of SEBI (Mutual Funds) Regulations, 2026
Paragraph 17.7 of the SEBI Master Circular.

This ensures the new facility supplements—not replaces—the existing risk management framework.

7. Cost of Borrowing

One of the most investor-friendly provisions is that:

Any borrowing cost shall be borne entirely by the AMC.
Any losses arising from delays in expected receivables shall also be borne by the AMC.

Analysis

This provision ensures that investors are insulated from operational inefficiencies of the AMC.

Regulatory Philosophy

The circular reflects SEBI's evolving approach towards modern liquidity management.

Historically, borrowings by mutual funds have been viewed conservatively due to concerns over leverage and investor protection. However, with increasingly sophisticated settlement systems and larger transaction volumes, temporary liquidity mismatches have become an operational reality rather than an indicator of financial distress.

By permitting intraday borrowings within a tightly controlled framework, SEBI acknowledges these operational realities while preserving the fundamental principle that mutual funds should not employ borrowings as a means of enhancing investment returns.

Impact on Stakeholders

Asset Management Companies

AMCs will benefit from:

Improved treasury management
Better liquidity planning
Reduced operational settlement risks
Lower need for maintaining excess idle cash

However, they must invest in:

Enhanced treasury systems
Real-time liquidity monitoring
Internal controls
Documentation and audit trails

Trustees

Trustees will assume greater oversight responsibilities, particularly in:

Reviewing borrowing policies
Monitoring compliance
Ensuring investor interests remain protected

Investors

Investors stand to benefit through:

Faster redemption processing
Reduced settlement failures
Improved operational efficiency
No additional borrowing costs being passed on to schemes

Regulators

SEBI gains:

Greater transparency
Better monitoring capability
Standardized governance across AMCs
Stronger investor protection mechanisms

Compliance Checklist for AMCs

Before September 1, 2026, AMCs should:

Draft and obtain Board-approved Intraday Borrowing Policy.
Obtain Trustee approval.
Update treasury and liquidity management systems.
Establish real-time monitoring mechanisms.
Maintain scheme-wise documentation.
Publish policy on AMC website.
Ensure accounting systems separately identify intraday borrowings.
Train treasury, compliance, and operations teams.
Review internal audit procedures for monitoring compliance.

Key Takeaways

SEBI has formally introduced intraday borrowing for mutual funds to address short-term operational liquidity mismatches.
The facility is restricted to specified operational purposes and is not intended for leveraging investment portfolios.
Borrowings must ordinarily be repaid on the same day, with any overnight extension subject to existing regulatory limits.
Governance has been strengthened through mandatory Board- and Trustee-approved policies, public disclosure, and robust record-keeping.
Borrowing costs and any losses due to delayed receivables must be borne by the AMC, ensuring investors are not disadvantaged.
The framework aims to enhance liquidity management while maintaining investor protection and market discipline.

Conclusion

The introduction of an intraday borrowing framework marks a pragmatic and progressive reform in India's mutual fund regulatory landscape. It acknowledges the practical realities of modern settlement cycles while preserving SEBI's long-standing emphasis on prudence, transparency, and investor protection. By combining operational flexibility with stringent governance requirements and explicit cost allocation to AMCs, the circular strikes a well-considered balance between efficiency and accountability. Its successful implementation from September 1, 2026, is expected to improve settlement efficiency, strengthen liquidity management practices, and enhance the resilience of the mutual fund ecosystem without compromising the interests of investors.

Tuesday, 14 July 2026

SEBI (Issue and Listing of Municipal Debt Securities) (Amendment) Regulations, 2026

Document: Gazette of India Extraordinary Notification No. SEBI/LAD-NRO/GN/2026/305 dated 1 July 2026 amending the SEBI (Issue and Listing of Municipal Debt Securities) Regulations, 2015.

Executive Summary

The Securities and Exchange Board of India (SEBI) has introduced significant amendments to the Municipal Debt Securities Regulations, 2015 with the objective of making the municipal bond market more transparent, investor-friendly and aligned with the regulatory framework governing non-convertible securities.

The amendments primarily focus on:

expanding investor participation;
permitting ESG municipal debt securities;
facilitating bond issuances through Special Purpose Vehicles (SPVs);
improving disclosures in offer documents;
digitising public issue advertisements;
enhancing financial and litigation disclosures; and
strengthening investor protection through better transparency.

Overall, these amendments are expected to deepen India's municipal bond market while encouraging urban infrastructure financing.

Background

Municipal bonds have traditionally been issued directly by municipal corporations.

However, several infrastructure projects are now undertaken through Special Purpose Vehicles (SPVs) under various Central Government schemes.

The earlier Regulations did not adequately address such structures.

These amendments bridge that gap.

Major Amendments

1. Introduction of "Retail Individual Investor"

A new definition has been inserted.

A Retail Individual Investor (RII) means an individual applying for municipal debt securities up to ₹2 lakh.

Significance

Aligns municipal bond regulations with equity and debt market norms.
Enables issuers to design investor-specific benefits.
Encourages wider retail participation.

2. Definition of "Working Day"

A comprehensive definition of Working Day has been introduced.

The definition varies depending upon:

issue opening;
issue closing;
listing process.

It also excludes Saturdays, Sundays and notified bank holidays depending upon the stage of issuance.

Practical implication

Removes ambiguity while computing:

issue timelines;
listing deadlines;
disclosure schedules;
allotment timelines.

3. ESG Municipal Debt Securities

One of the most important amendments is the insertion of Regulation 4C.

Municipal issuers may now issue ESG Debt Securities, subject to compliance with the SEBI framework applicable to listed non-convertible securities and ESG instruments.

Impact

This opens the municipal bond market to:

Green Bonds
Social Bonds
Sustainability Bonds

Examples include financing:

metro projects
sewage treatment
renewable energy
water supply
affordable housing
climate-resilient infrastructure

4. Municipal Bond Issuance through SPVs

A completely new provision allows fund raising through Special Purpose Vehicles created under the Government of India's Pooled Finance Development Fund Scheme.

Requirements

Before issuing securities:

municipalities must execute agreements with the SPV;
details must be disclosed in the Offer Document;
SPV may be either:
- a Trust; or
- a Company.

Importance

This amendment is expected to significantly increase municipal bond issuances.

5. Digital Public Issue Advertisements

Earlier:

Advertisements had to be published in newspapers.

Now:

Advertisements may be published electronically through:

online newspapers;
issuer website;
stock exchange website.

If electronic publication is chosen, a newspaper notice containing:

QR Code
web link

must also be published.

Benefit

lower issue costs;
faster dissemination;
environmentally friendly.

6. Incentives to Retail Investors

Issuers are now permitted to provide incentives to specified investor categories including:

Senior Citizens
Women
Serving Defence Personnel
Veterans
Spouses of martyrs
Retail Individual Investors
other investor classes specified by SEBI

Examples:

additional coupon;
discounted issue price.

Such incentives are available only to original allottees.

7. Enhanced Project Disclosure

Where fresh borrowing is proposed for refinancing existing borrowings, issuers must disclose:

original lender;
amount borrowed;
interest rate;
repayment schedule;
utilisation;
restructuring history;
reasons for refinancing.

This substantially improves transparency.

8. New Schedule IA

A completely new Schedule IA has been introduced for SPV issuers.

It prescribes extensive disclosure requirements including:

General information

registered office
directors
compliance officer
lead manager
registrar
debenture trustee
auditors
legal advisors
credit rating agencies

Capital structure

management
shareholding
resolutions
project approvals

Project disclosures

project cost
implementation schedule
approvals
financing pattern
grants
milestones

Financial disclosures

Three years' financial information including:

Balance Sheet
Income Statement
Cash Flow
Debt
Debt Service Coverage
Sinking Fund
Property Tax collections
Cash balances
Municipal finances

Litigation disclosures

Detailed disclosures regarding:

criminal proceedings
tax disputes
SEBI actions
regulatory proceedings
defaults
material litigation

Risk Factors

Mandatory categorisation into:

internal risks;
external risks;
project risks;
liquidity risks;
repayment risks.

Investor Protection Measures

The amendments considerably strengthen investor protection through:

greater disclosure obligations;
QR-code enabled disclosures;
website-based access to financial statements;
disclosure of pending creditor dues;
MSME payment disclosures;
disclosure of material contracts;
enhanced litigation reporting;
management certifications;
detailed risk factors.

Impact on Stakeholders

Municipal Corporations

Easier access to capital markets.
Greater disclosure obligations.
Ability to use SPV structures.

Special Purpose Vehicles

Major beneficiaries.

They now have a complete regulatory framework for listed municipal bonds.

Merchant Bankers

Need to perform enhanced due diligence regarding:

project finance;
municipal finances;
litigation;
creditor information.

Debenture Trustees

Receive more detailed information, improving monitoring and investor protection.

Investors

Benefit from:

greater transparency;
improved disclosures;
retail incentives;
ESG investment opportunities.

Compliance Checklist

Before a municipal debt issue, issuers should ensure:

✔ Eligibility under the amended Regulations.
✔ SPV documentation (if applicable).
✔ ESG compliance (where ESG-labelled securities are issued).
✔ Updated Offer Document with all prescribed disclosures.
✔ Disclosure of refinancing details, if applicable.
✔ QR code and electronic advertisement arrangements.
✔ Three years' financial disclosures.
✔ Litigation and creditor disclosures.
✔ Risk factor disclosures.
✔ Board approvals and requisite authorisations.

Key Takeaways

The amendments represent one of the most comprehensive updates to the Municipal Debt Securities framework since 2015. They are designed to:

promote municipal infrastructure financing through the capital markets;
facilitate SPV-based bond issuances;
integrate ESG financing into municipal borrowing;
encourage retail investor participation through defined eligibility and incentives;
modernise disclosures through electronic publication and QR codes; and
strengthen investor protection with significantly enhanced transparency and governance requirements.

Overall Assessment

From a corporate governance and securities law perspective, these amendments are a progressive reform that aligns the municipal bond market with SEBI's broader disclosure-based regulatory philosophy. They are likely to improve market confidence, facilitate urban infrastructure funding, and attract a broader base of institutional, ESG-focused, and retail investors while imposing a higher standard of accountability on municipal issuers and SPVs.

Monday, 13 July 2026

SEBI (Custodian) (Amendment) Regulations, 2026

The Securities and Exchange Board of India (Custodian) (Amendment) Regulations, 2026, notified on 3 July 2026, introduce a significant change in the fee payment framework applicable to SEBI-registered custodians. The amendments replace the existing annual fee mechanism with a monthly fee regime, effective 1 October 2026.

The objective of the amendment appears to be to align regulatory fee collection with the periodic reporting of Assets Under Custody (AUC), improve cash flow management for custodians, facilitate more frequent regulatory oversight, and ensure proportional fee liability for newly registered custodians.

Background

The SEBI (Custodian) Regulations, 1996 govern entities registered as custodians of securities, who hold securities and related assets on behalf of institutional investors such as:

Mutual Funds
Foreign Portfolio Investors (FPIs)
Alternative Investment Funds (AIFs)
Insurance Companies
Pension Funds
Other institutional investors

Prior to this amendment, custodians were required to pay annual registration fees, calculated as:

₹10,00,000 annually; or
0.0005% of Assets Under Custody (AUC),

whichever was higher.

Effective Date

The amendment comes into force on:

1 October 2026.

Major Amendments

1. Annual Fee replaced by Monthly Fee

The most significant amendment is the substitution of the expression "annual fee" with "monthly fee" throughout the Regulations.

Accordingly:

Regulation 9(d)
Regulation 26(i)
Second Schedule

have all been amended.

2. Revision of Fee Structure

The revised fee is now:

Monthly Fee

₹85,000; or
0.0000416% of Assets Under Custody,

whichever is higher.

Practical Observation

The revised percentage is essentially the annual rate divided into monthly instalments:

Earlier	Revised
₹10,00,000 annually	₹85,000 monthly
0.0005% annually	0.0000416% monthly

Thus, the overall economic burden remains substantially unchanged, while the payment frequency changes.

3. Monthly Payment Timeline

Every custodian must pay the monthly fee:

within 15 days from the end of each month.

Example

Month	Due Date
October 2026	15 November 2026
November 2026	15 December 2026

4. New Custodians

Custodians receiving registration after 1 October 2026 will:

pay proportionate monthly fee for the month in which registration is granted; and
thereafter pay the full monthly fee for every month during which registration remains valid.

This ensures equitable treatment by charging only for the relevant portion of the initial month.

5. Existing Custodians – Transitional Arrangement

Custodians already registered before 1 October 2026 must:

pay proportionate annual fees for the portion of FY 2026–27 up to the commencement of the amended regime; and
thereafter shift to monthly fee payments.

6. Adjustment of Annual Fee Already Paid

Where an existing custodian has already paid annual fees covering a period beyond 1 October 2026, the amount relating to the post-commencement period will be adjusted against future fee liabilities.

Significance

This avoids:

double payment,
unjust enrichment of the regulator, and
administrative disputes regarding refunds.

7. Monthly Reporting of Assets Under Custody

The amendment also changes the reporting requirement.

Instead of furnishing AUC details annually, custodians must now submit Assets Under Custody details every month in the format specified by SEBI. The statement must be certified by the Functional Head of Custody Services regarding its correctness and completeness.

Practical Impact

The amendment is expected to have several operational implications:

Better Regulatory Oversight

Monthly reporting enables SEBI to monitor changes in Assets Under Custody more frequently and detect unusual movements sooner.

Improved Cash Flow

Monthly fee payments spread the financial outflow over the year instead of requiring a single annual payment.

Enhanced Compliance Requirements

Custodians will need to:

compute monthly fees accurately,
track due dates,
prepare monthly AUC statements, and
obtain timely internal certification.

System Changes

Custodians may need to update:

finance systems,
compliance calendars,
billing processes,
internal controls, and
reporting software.

Compliance Action Points

Before 1 October 2026, custodians should:

Revise internal compliance calendars to reflect monthly fee obligations.
Modify accounting and ERP systems for monthly fee computation and payment.
Establish a process for preparing monthly AUC statements.
Designate responsible officers for certification and timely submission.
Review annual fees already paid and reconcile transitional adjustments.
Train finance and compliance teams on the revised framework.

Key Takeaways

Effective Date: 1 October 2026.
Annual fees are replaced by monthly fees across the regulatory framework.
Monthly fee: ₹85,000 or 0.0000416% of Assets Under Custody, whichever is higher.
Fees are payable within 15 days after the end of each month.
New custodians pay proportionate fees for the month of registration.
Existing custodians transition through a proportionate annual fee mechanism with adjustments for fees already paid.
Monthly submission of certified AUC details becomes mandatory.

Conclusion

The SEBI (Custodian) (Amendment) Regulations, 2026 represent a procedural modernization rather than a substantive increase in regulatory costs. By replacing annual payments with a monthly fee and reporting regime, SEBI aims to enhance supervisory oversight, improve the timeliness of compliance information, and create a more streamlined fee collection mechanism. While the overall financial liability for custodians remains broadly unchanged, the amendments will require updates to internal systems, compliance workflows, and reporting practices to ensure timely monthly payments and certified disclosure of Assets Under Custody.