RBI KYC amendment for Small Finance Banks: Certified-copy facility now extended to FPIs

The Reserve Bank of India has updated the Reserve Bank of India (Small Finance Banks – Know Your Customer) Directions, 2025 through a fresh set of amendment directions issued on September 18, 2026. These new Reserve Bank of India (Small Finance Banks – Know Your Customer) Amendment Directions, 2026 specifically widen the scope of who can use the alternative “original certified copy” facility for Know Your Customer (KYC) compliance.

Previously, this alternative route for certified copies of KYC documents was available only to Non-Resident Indians (NRIs) and Persons of Indian Origin (PIOs) under paragraph 5(1)(v) of the KYC Directions for Small Finance Banks. Following a review, the Reserve Bank of India has now extended this facility to cover Foreign Portfolio Investors (FPIs) as well.

The amendment directions have been brought into effect immediately from the date of issue and operate within the broader framework of the Prevention of Money Laundering Act, 2002 and the Prevention of Money Laundering (Maintenance of Records) Rules, 2005.

Background: Original KYC Directions for Small Finance Banks

Linkage with AML and PMLA framework

The original Reserve Bank of India (Small Finance Banks – Know Your Customer) Directions, 2025 dated November 28, 2025 were framed to align the KYC processes of Small Finance Banks with anti-money laundering (AML) and counter-terror financing obligations. These Directions were issued pursuant to:

  • Prevention of Money Laundering Act, 2002
  • Prevention of Money-Laundering (Maintenance of Records) Rules, 2005

The Directions lay down the conditions under which a Small Finance Bank must establish identity and address of customers, including residents, NRIs, PIOs and other categories of persons, while ensuring compliance with applicable prudential and AML laws.

Role of paragraph 5(1)(v) in KYC compliance

Paragraph 5(1)(v) of the 2025 Directions originally provided that Small Finance Banks may, for certain non-resident categories, rely on “original certified copies” of KYC documents when obtaining and verifying identity and address proof. Specifically, this applied to:

  • Non-Resident Indians (NRIs)
  • Persons of Indian Origin (PIOs)

Both categories are defined in the Foreign Exchange Management (Deposit) Regulations, 2016 {FEMA 5(R)}.

The provision allowed banks, in the case of these persons, to accept documents that had been certified abroad by specified authorities or authorised officials, subject to the conditions laid down in the Directions.

Key change: Facility now extended to Foreign Portfolio Investors

Review of existing instructions

The Reserve Bank of India has re-examined the existing framework concerning the acceptance of certified KYC documents for non-resident customers of Small Finance Banks. On review, it was concluded that the same relaxation that is available to NRIs and PIOs should also be made available to Foreign Portfolio Investors (FPIs).

The key policy rationale is to streamline KYC onboarding and ongoing compliance for FPIs interacting with Small Finance Banks, without diluting the core due diligence standards under PMLA and the KYC Directions.

Inclusion of FPIs in certified-copy facility

As a result, the amended paragraph 5(1)(v) now expressly extends the scope of the alternative “original certified copy” route to:

  • Non-Resident Indians (NRIs)
  • Persons of Indian Origin (PIOs), as per Foreign Exchange Management (Deposit) Regulations, 2016 {FEMA 5(R)}
  • Foreign Portfolio Investors (FPIs)

Accordingly, in addition to the standard mechanism of bank officers comparing original documents with photocopies, banks may now also accept original certified copies for FPIs issued by authorised entities specified in the amended text.

Statutory powers invoked by RBI

To issue the Reserve Bank of India (Small Finance Banks – Know Your Customer) Amendment Directions, 2026, the Reserve Bank of India has relied on a combination of statutory provisions, reflecting both its regulatory oversight over banks and its role under payment systems and foreign exchange laws.