RBI’s Draft Amendment Directions 2026 for Rural Co-operative Banks: Key Regulatory Changes Explained

The Reserve Bank of India has proposed a fresh set of amendments to the existing framework governing how Rural Co-operative Banks (RCBs) can undertake financial services such as agency business, insurance distribution and referral activities. These changes are contained in the Draft Reserve Bank of India (Rural Co-operative Banks – Undertaking of Financial Services) Amendment Directions, 2026, issued under Section 35A read with Section 56 of the Banking Regulation Act, 1949.

The draft amendments primarily recalibrate the regulatory treatment of agency and referral arrangements, especially in relation to insurance products, and integrate conduct-related requirements with the new Reserve Bank of India (Rural Co-operative Banks – Responsible Business Conduct) Directions, 2025.

These Amendment Directions are proposed to be effective from April 1, 2026, and will modify the earlier Reserve Bank of India (Rural Co-operative Banks – Undertaking of Financial Services) Directions, 2025 (referred to as “the Master Direction”).

The Reserve Bank has invoked its powers under Section 35A read with Section 56 of the Banking Regulation Act, 1949 to issue these Draft Amendment Directions. This provision empowers RBI to issue binding directions to banking entities, including RCBs, where it considers such measures necessary in the public interest, or to secure proper management of banks, or to safeguard the interests of depositors.

The stated objective underlying these amendments is:

  • To update and refine the rules governing agency business and referral-based services carried out by RCBs;
  • To align customer service and conduct standards for RCBs with a consolidated framework to be issued as Reserve Bank of India (Rural Co-operative Banks – Responsible Business Conduct) Directions, 2025; and
  • To ring-fence RCBs from risk participation in insurance and similar arrangements, ensuring that such services are rendered purely on a fee-based model.

Commencement and scope of applicability

Effective date

The draft Reserve Bank of India (Rural Co-operative Banks – Undertaking of Financial Services) Amendment Directions, 2026 specify as follows:

  1. These Directions shall be called Reserve Bank of India (Rural Co-operative Banks – Undertaking of Financial Services) Amendment Directions, 2026; and
  2. They shall come into force with effect from April 1, 2026.

From this date, the existing Master Direction for RCBs on undertaking financial services will stand modified to the extent provided in the draft amendments.

Entities covered

The amendments are relevant for all Rural Co-operative Banks that are governed by the Reserve Bank of India (Rural Co-operative Banks – Undertaking of Financial Services) Directions, 2025 and are engaged in any of the following:

  • Agency business such as distribution of insurance products;
  • Referral services with insurance companies or other financial service providers;
  • Offering or displaying third-party financial products on their websites or digital channels.

Key structural amendments proposed to the 2025 Master Direction

The draft Amendment Directions bring in targeted textual changes to the Master Direction, 2025, which can be grouped into four principal modifications.

1. Deletion of sub-para 10 of paragraph 15

The draft states that sub-para 10 of paragraph 15 of the Master Direction stands deleted.

While the specific text of sub-para 10 is not repeated in the draft, the legal effect is clear: from April 1, 2026, that particular sub-paragraph will cease to have force, and any compliance or operational requirement earlier anchored in that provision will no longer apply.

Note: RCBs must revisit their internal policies and operational manuals that rely on paragraph 15, identify where sub-para 10 has been referenced, and modify such documents to align with the updated Directions.

2. Insertion of new paragraphs 21A to 21D

A significant part of the amendment is the introduction of four new paragraphs (21A to 21D) immediately after existing paragraph 21 in the Master Direction. These insertions reshape how RCBs must approach business conduct and insurance-related agency activities.

21A – Mandatory adherence to Responsible Business Conduct Directions

Under the new paragraph 21A, the RBI mandates that:

“An RCB shall ensure that it is in full compliance with the instructions on Reserve Bank of India (Rural Co-operative Banks – Responsible Business Conduct) Directions, 2025.”

In essence: