RBI Proposes Disaster Relief Framework for Banks to Support Borrowers During Natural Calamities

India’s central bank has proposed a new set of guidelines requiring banks and other regulated entities to build disaster-related relief measures into their credit policies. The draft framework, released on Tuesday, aims to help lenders implement resolution plans for borrowers affected by natural calamities, giving institutions flexibility to design and execute relief based on individual assessments.

Under the proposed rules, banks may offer measures such as rescheduling loan repayments, converting accrued interest into separate credit facilities, granting moratoriums, or even providing additional financing to address borrower stress. The Reserve Bank of India said the principle-based approach would give lenders full discretion in structuring these resolution plans, while ensuring preparedness for climate-related disruptions.

The move comes as India continues to face frequent extreme weather events, including floods, landslides, and crop damage across several states. India ranks sixth globally in climate vulnerability, having suffered more than 400 extreme weather events between 1993 and 2022, causing significant loss of life and economic damage. Borrowers who are not overdue by more than 30 days would be eligible for relief. The RBI has invited public and stakeholder feedback on the draft until February 17, with the rules set to take effect from April 1.

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