RBI Curtails Temporary Deposit Rate Relaxation for Small Finance Banks — New Deadline: August 31, 2026

The Reserve Bank of India has issued a fresh set of amendment directions — formally designated as RBI/2026-27/244, DOR.SOG(SPE).REC.212/13.03.00/2026-27, dated August 25, 2026 — that bring forward the expiry date of a temporary regulatory relaxation previously extended to Small Finance Banks in respect of interest rates on certain categories of deposits. These are formally titled the Reserve Bank of India (Small Finance Banks – Interest Rate on Deposits) Third Amendment Directions, 2026.

Background: The 2025 Directions and the June 2026 Relaxation

The Principal Framework

The foundational regulatory document governing deposit interest rates for Small Finance Banks is the Reserve Bank of India (Small Finance Banks – Interest Rate on Deposits) Directions, 2025, originally issued on November 28, 2025 and subsequently updated on June 17, 2026. These Directions establish a comprehensive interest-rate framework applicable to Small Finance Banks across multiple deposit categories, including domestic term deposits, Non-Resident External (NRE) / Non-Resident Ordinary (NRO) deposits, and Foreign Currency Non-Resident (Bank) — commonly referred to as FCNR(B) — deposits.

Normal Interest-Rate Restrictions Under the 2025 Directions

Under the standard regulatory regime prescribed by the 2025 Directions:

  • Paragraph 26(4) stipulates that the interest rates offered by Small Finance Banks on NRE/NRO deposits must not exceed the rates offered on comparable domestic rupee term deposits of equivalent maturity.
  • Paragraph 31(7) prescribes specific ceilings on the interest rates that Small Finance Banks may offer on FCNR(B) deposits.

These restrictions are designed to ensure orderly conduct in the deposit market and prevent undue rate competition that could expose Small Finance Banks to excessive funding risks.

The June 17, 2026 Temporary Relaxation

By way of the Reserve Bank of India (Small Finance Banks – Interest Rate on Deposits) Amendment Directions, 2026, issued on June 17, 2026, the RBI introduced a time-bound relaxation from the above restrictions. Specifically: