Banking & Finance Digest June 01, 2026

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1.               Regulatory Updates

1.1.           India

Reserve Bank of India (RBI)

1.1.1.      Reserve Bank of India issues Amendment Directions introducing cooling-off period for Co-operative Bank Directors

The Reserve Bank of India (“RBI”) has issued final Amendment Directions relating to governance of Urban Co-operative Banks (“UCBs”) and Rural Co-operative Banks (“RCBs”), following stakeholder consultation on draft directions released on 8 January 2026. The amendments introduce a mandatory cooling-off period for directors upon completion of a continuous tenure of ten years on the board of a UCB or RCB. This measure is intended to ensure effective implementation of statutory provisions under the Banking Regulation Act, 1949, particularly to promote better governance and prevent prolonged concentration of influence. The RBI reviewed feedback received on the draft proposals and incorporated appropriate revisions before issuing the final directions, along with a statement summarising stakeholder inputs.

Securities and Exchange Board of India (SEBI)

1.1.2.      SEBI revises Nomination Framework for Demat Accounts and Mutual Fund Folios

The Securities and Exchange Board of India (“SEBI”) has revised the nomination framework for demat accounts and mutual fund folios to simplify investor onboarding and reduce unclaimed assets. Under the revised norms, nomination will remain mandatory for newly opened single holder accounts and folios unless the investor expressly opts out, while nomination will be optional for jointly held accounts. Investors may nominate up to three persons and can submit, modify, cancel nominations at any time through online or offline modes. SEBI has also simplified the information required from nominees and removed the requirement for witness signatures in most physical submissions. The revised framework applicable to both existing and new accounts and folios, will come into effect from 1 September 2026.

Insurance Regulatory and Development Authority of India (IRDAI)

1.1.3.      IRDAI Revises Corporate Governance Framework to Align KMP Performance Parameters with Customer Outcomes

IRDAI has amended the Master Circular on Corporate Governance for Insurers, 2024 to revise the performance parameters applicable to Key Managerial Personnel (KMPs) of insurance companies with the objective of strengthening customer trust, transparency, accountability, and governance across the insurance sector. The revised framework expands beyond traditional financial and operational metrics to include customer-centric indicators such as customer satisfaction, claims responsiveness, grievance redressal timelines, reduction in repeat complaints, removal of dark patterns from insurer and distributor websites, and fair and transparent service processes. The amended framework also mandates enhanced disclosures relating to financial soundness, product performance, claim settlement efficiency, grievance handling, premium rate increases, exclusions, FAQs, and returns, with disclosures required on a monthly or quarterly basis in an easily accessible manner without collecting personal details of website visitors. IRDAI has stated that the amendments aim to strengthen board oversight and compliance practices, reduce information asymmetry, and enable policyholders to make informed decisions while promoting a more customer-centric and transparent insurance sector.

Miscellaneous

Unique Identification Authority of India (UIDAI)

1.1.4.      UIDAI Launches Bug Bounty Programme to Strengthen Aadhaar Security

UIDAI has launched its first structured Bug Bounty Programme to further strengthen the security of the Aadhaar ecosystem by enabling cybersecurity experts to identify and responsibly disclose vulnerabilities in selected UIDAI digital platforms. Under the initiative, 20 experienced security researchers and ethical hackers have been selected to examine digital assets including the UIDAI official website, myAadhaar portal, and Secure QR Code application for vulnerabilities categorised as Critical, High, Medium, and Low risk, with rewards linked to the severity of issues identified. The programme is being implemented in partnership with ComOlho IT Private Limited and supplements UIDAI’s existing security measures such as security audits, vulnerability assessments, penetration testing, and continuous monitoring. UIDAI has stated that the initiative aims to further enhance the resilience and security of Aadhaar-related digital platforms and align with global best practices for strengthening cybersecurity frameworks.

1.1.5.      UIDAI Notifies Aadhaar (Enrolment and Update) First Amendment Regulations, 2026

UIDAI has notified the Aadhaar (Enrolment and Update) First Amendment Regulations, 2026 to expand the list of documents accepted for Aadhaar enrolment and updates, introduce clearer enrolment norms for children, foreign nationals and vulnerable groups, and strengthen standardisation in the verification process. The amended regulations recognise additional documents including e-Voter IDs, e-Ration Cards, pension payment orders, marriage certificates, divorce decrees, educational records, bank documents, insurance policies, registered rent agreements, NREGA job cards, prisoner identity documents, shelter home certificates, and transgender identity certificates issued under the Transgender Persons (Protection of Rights) Act, 2019 for identity, address, relationship and date of birth verification. The regulations also prescribe stricter document consistency requirements, clarify validity periods for Aadhaar issued to OCI cardholders and foreign nationals residing in India, and introduce specific enrolment provisions for children, persons under guardianship, institutional care residents, prisoners, and HIV/AIDS-affected individuals. UIDAI has stated that the amendments aim to simplify Aadhaar access, improve inclusivity, reduce enrolment barriers, and strengthen verification standards across the Aadhaar ecosystem.

Monetary Penalties

1.1.6.      RBI imposes penalties on four banks for regulatory non-compliance

RBI has imposed monetary penalties on the following institutions:

Sr. No.	Name of Bank	Amount of Penalty	Grounds for Penalty
1.	The Lunawada People’s Co-operative Bank Ltd., Dist. Mahisagar, Gujarat	INR 2 lakh (Indian Rupees Two Lakh only)	For non-compliance with certain directions issued by RBI on ‘Loans and advances to directors, their relatives, and firms / concerns in which they are interested’. The bank had sanctioned loans wherein relatives of its directors stood as guarantors.
2.	Shree Laxmi Co-operative Bank Ltd., Pune	INR 2 lakh (Indian Rupees Two Lakh only)	For non-compliance with certain directions issued by RBI on ‘Know Your Customer (KYC)’; `Maintenance of Deposit Accounts – Primary (Urban) Co-operative Banks’ and `Inoperative Accounts / Unclaimed Deposits in Banks – Revised Instructions’.
3.	The Jalore Central Co-operative Bank Limited, Rajasthan	INR 2 lakh (Indian Rupees Two Lakh only)	For non-compliance with certain directions issued by RBI on ‘Know Your Customer (KYC)’. The bank had failed to: put in place a system of periodic review of risk categorisation of accounts; and carry out periodic updation of KYC of its customers as per the prescribed periodicity.
4.	CreditAccess Grameen Limited	INR 3.10 lakh (Rupees Three Lakh Ten Thousand only)	For non-compliance with certain provisions of the 'Reserve Bank of India (Know Your Customer (KYC)) Directions' issued by RBI. The company failed to put in place a robust software, throwing alerts when the transactions are inconsistent with risk categorization and updated profile of customers, as a part of effective identification and reporting of suspicious transactions.

2.               Key Asian Markets - Bangladesh and Sri Lanka

2.1.           Bangladesh

2.1.1.     Bangladesh Bank issues directions to strengthen Bangla QR implementation

Bangladesh Bank (“BB”), through a circular issued by its Payment Systems Department on May 23, 2026, has introduced measures to accelerate the adoption and expansion of the Bangla QR payment ecosystem across scheduled banks, Mobile Financial Service (MFS) providers, Payment Service Providers (PSPs), and Payment System Operators (PSOs). The circular renames the existing “Cashless Bangladesh Unit” as the “Bangla QR Implementation Unit” and requires regulated entities to enhance customer onboarding, enable Bangla QR payment functionality on mobile applications, onboard retail merchants to the Bangla QR channel, and submit implementation plans with specific targets. The initiative forms part of Bangladesh Bank’s broader efforts to reduce cash usage and promote an inclusive digital payments infrastructure in Bangladesh.

2.1.2.     Bangladesh Bank relaxes eligibility conditions under CMSME refinancing scheme

BB, through a circular issued by its SME and Special Programmes Department on May 24, 2026, has relaxed certain eligibility conditions for banks and financial institutions seeking access to refinancing facilities under the Cottage, Micro, Small and Medium Enterprises (CMSME) refinancing fund. The circular exempts participating institutions from specified conditions relating to the maximum classified loan and investment ratio and compliance with prescribed capital adequacy, Cash Reserve Ratio (CRR), and Statutory Liquidity Ratio (SLR) requirements until further instructions are issued. The measure has been introduced to facilitate broader participation in the refinancing scheme and enhance credit flow to the CMSME sector.

2.1.3.     Bangladesh Bank permits foreign currency term deposits for shipping companies and airlines

BB, through Circular No. 03 dated May 24, 2026, has permitted balances held in foreign currency accounts of Bangladeshi shipping companies and airlines engaged in global operations to be maintained as interest/profit-bearing renewable foreign currency term deposits with Authorised Dealer (AD) banks in approved currencies. The circular provides that the tenure of such deposits may be determined in accordance with normal banking practices, while interest or profit may be offered based on the banker-customer relationship for the relevant currency and must be paid in local currency (BDT) using the prevailing spot exchange rate. The measure has been introduced to facilitate inward remittances and support the growing foreign currency earnings of Bangladeshi shipping companies and airlines.

2.2.           Sri Lanka

2.2.1.      IMF Completes Fifth and Sixth Reviews Under Sri Lanka’s Extended Fund Facility

The International Monetary Fund (IMF) Executive Board has completed the combined Fifth and Sixth Reviews under the Extended Fund Facility (EFF) for Sri Lanka, enabling immediate access to SDR 508 million (Special Drawing Rights Five Hundred Eight Million only), equivalent to approximately USD 695 million (United States Dollars Six Hundred Ninety Five Million only), to support the country’s economic policies and reform measures. The IMF stated that programme performance was generally strong, with prior actions relating to restoration of fuel and electricity cost-recovery pricing having been met, all end-December 2025 quantitative performance criteria achieved, and most structural benchmarks either met or implemented with delay. However, the continuous performance criteria regarding no new external payment arrears and the non-imposition or intensification of import restrictions were not observed. The IMF further noted that geopolitical developments arising from the war in the Middle East and the aftermath of Cyclone Ditwah pose downside risks, while indicating that the reform programme has strengthened Sri Lanka’s ability to respond to economic shocks and support vulnerable sections of the population.

2.2.2.      Central Bank of Sri Lanka Raises Overnight Policy Rate to 8.75 per cent

The Central Bank of Sri Lanka has increased the Overnight Policy Rate (OPR) by 100 basis points (100 bps) to 8.75 per cent (eight point seven five per cent) following a review of evolving domestic and global economic conditions. The Monetary Policy Board stated that heightened tensions in the Middle East have kept global commodity prices, particularly petroleum prices, elevated, resulting in higher domestic energy prices and contributing to inflation of 5.4 per cent (Five point Four per cent only) in April 2026. The Central Bank noted that continued credit expansion, credit-driven imports and strengthening economic activity have also supported demand conditions, while speculative activity and external sector pressures contributed to depreciation pressures on the Sri Lankan rupee. The Board further observed that gross official reserves stood at USD 6.8 billion (United States Dollars Six Billion Eight Hundred Million only) as of end-April 2026 and stated that the tightening of monetary policy was necessary to address elevated inflation forecasts, potential second-round effects from energy price adjustments, pressures on the external sector, and risks to inflation expectations, while maintaining domestic price stability over the medium term.

3.               Trends

3.1.           Union Bank to raise INR 8,000 crore through debt, equity mix

Union Bank of India has approved a capital-raising plan of up to INR 8,000 crore (Indian Rupees Eight Thousand crore only), comprising both debt and equity instruments. The bank will raise up to INR 5,000 (Indian Rupees Five Thousand crore only) through Basel III-compliant Additional Tier 1 and/or Tier 2 bonds, while the remaining INR 3,000 (Indian Rupees Three Thousand crore only) will be mobilised through equity instruments such as further public offer, rights issue or private placements. The capital infusion is intended to strengthen the bank’s capital adequacy and support its growth plans, reflecting a broader trend of banks diversifying capital sources amid evolving regulatory and market conditions.

3.2.           PhysicsWallah to infuse INR 120 crore in its fintech arm FinZ Finance

PhysicsWallah has approved an investment of INR 120 (Indian Rupees One Hundred Twenty crore only) in its wholly owned fintech subsidiary, FinZ Finance, to scale its lending and financial services operations. The company will subscribe to equity shares at a premium, while maintaining its existing shareholding in the entity. FinZ Finance, which holds a Non-Banking Financial Company (“NBFC”) licence from the RBI, operates across leasing, hire purchase and financing activities. The investment signals PhysicsWallah’s strategic intent to deepen its presence in financial services and build an integrated financing ecosystem, particularly to support education financing and broader consumer lending.

3.3.           Life Insurance Corporation of India sees re-rating potential driven by non-participating product mix and margin expansion

Life Insurance Corporation of India (“LIC”) is witnessing improved profitability and valuation outlook driven by its strategic shift towards high-margin non-participating products. The share of non-participating products increased to 35.1 per cent (thirty-five point one per cent) in the financial year 2026, contributing to a 41.6 per cent (forty-one point six per cent) growth in the value of new business. Analysts expect continued margin expansion, with the value of new business margins stabilising around 21 per cent (twenty-one per cent), supported by improved product mix, pricing adjustments and expansion into bancassurance and alternative distribution channels. Additionally, digital transformation initiatives and operational efficiencies are expected to enhance long-term profitability and drive further re-rating potential, despite certain risks related to market sensitivity and persistency trends.

4.               Sector Overview

4.1.           Microfinance industry contracts but asset quality shows improvement

India’s microfinance sector has witnessed a contraction, with the overall portfolio declining by 9 per cent (nine per cent) year on year to approximately INR 3.34 lakh crore (Indian Rupees Three Lakh Thirty-Four Thousand crore only) as of April 2026. The number of active loans also fell by 21 per cent (twenty-one per cent), reflecting subdued credit demand and cautious lending sentiment. Disbursement volumes decreased by 18 per cent (eighteen per cent), while total disbursements stood at INR 2.54 lakh crore (Indian Rupees Two Lakh Fifty-Four Thousand crore only). Despite this slowdown, asset quality indicators improved, with 30+ day delinquencies declining to 2.5 per cent (two point five per cent). The sector remains dominated by Non-Banking Financial Company – Microfinance Institutions (“NBFC-MFIs”), followed by banks and other lenders, with geographic concentration in a few key states.

4.2.           India credit market records strong growth driven by retail lending and improved asset quality

India’s credit market witnessed robust growth in financial year 2026, driven by increased loan demand, expansion in secured lending and improved asset quality. Total loan sourcing rose by 31 per cent (thirty-one per cent) year on year to approximately INR 75 lakh crore (Indian Rupees Seventy-Five Lakh crore only), while Assets Under Management (“AUM”) grew by 19 per cent (nineteen per cent) to INR 137 lakh crore (Indian Rupees One Hundred Thirty-Seven Lakh crore only). The growth was primarily led by secured lending segments such as gold loans and home loans, with gold loan AUM increasing by 47 per cent (forty-seven per cent). Unsecured lending, particularly personal loans, also rebounded strongly.

5.               Business Updates

5.1.           Go Digit General Insurance faces GST show cause notice

Go Digit General Insurance Limited has received a show cause notice (“SCN”) from the Directorate General of GST Intelligence (“DGGI”) under Section 74(1) of the Central Goods and Services Tax Act, 2017, alleging ineligible input tax credit (“ITC”) claims between September 2022 and March 2024. The notice seeks recovery of INR 20.51 crore (Indian Rupees Twenty Crore Fifty-One Lakh Two Hundred Eighty-One only), excluding interest and penalties. The company has stated that there is no immediate financial impact, as the matter is currently at the show-cause stage and no adjudication order has been passed. It is in the process of evaluating the SCN and will file a detailed response, while also pursuing available legal remedies and comply with disclosure requirements under the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.

5.2.           Bajaj Finserv launches Finserv Intelligence to invest in new-age ventures

Bajaj Finserv Limited has established a new division, Finserv Intelligence, aimed at investing between INR 1,500 crore and INR 2,000 crore (Indian Rupees One Thousand Five Hundred Crore to Indian Rupees Two Thousand Crore only) over five years in early-stage start-ups focusing on artificial intelligence (“AI”), fintech, cybersecurity and consumer technology platforms. The initiative also involves the co-creation of new ventures and the development of applied research capabilities. As part of this strategy, Bajaj Finserv has partnered with the Indian Institute of Technology Bombay (“IIT Bombay”) to establish a joint research centre covering areas such as AI, cybersecurity and quantum technologies. The move reflects the codevelopment andto bridge academia and industry, strengthen research and development, and position itself to capture opportunities in emerging global sectors.

5.3.           Elevation Capital sells INR 964 crore worth of Paytm shares via block deals

Elevation Capital (formerly Saif Partners) has divested Paytm shares worth approximately INR 964 crore (Indian Rupees Nine Hundred Sixty-Four Crore only) through multiple block deals, with participation from institutional investors including Société Générale, Morgan Stanley Asia, and Marshall Wace Investment Strategies. The transaction forms part of a broader trend over the past two years, during which Elevation Capital and Ant Financial have been among the largest sellers of Paytm shares. The development also reflects continued stake dilution by early investors in the company, alongside Paytm’s evolution in ownership structure, with domestic investors increasing their stake to around 50 per cent (fifty per cent). Notably, Paytm reported its first full-year profit in the financial year 2026 (“FY26”), with net profit of INR 556 crore (Indian Rupees Five Hundred Fifty-Six Crore only) and revenue growth of 22 per cent (twenty-two per cent), indicating improved financial performance amid ongoing investor exits.

5.4.           Oxyzo Financial Services reports 11 per cent rise in FY26 profit

Oxyzo Financial Services Limited reported an 11 per cent (eleven per cent) increase in consolidated net profit to INR 375 crore (Indian Rupees Three Hundred Seventy-Five Crore only) for the financial year 2026 (“FY26”), supported by a 23 per cent (twenty-three per cent) rise in revenue to INR 1,489 crore (Indian Rupees One Thousand Four Hundred Eighty-Nine Crore only). The growth was driven by higher interest income and expansion of its loan book, while maintaining improved asset quality, with gross non-performing assets declining to 0.74 per cent (zero point seven four per cent). Despite a moderation in net profit margins due to increased costs, the company continues to diversify beyond lending, including entering fund management and acquiring a bond distribution platform. These initiatives indicate a broader strategy to expand its financial services offerings and tap into retail and capital market segments.

Disclaimer

The note is prepared for knowledge dissemination and does not constitute legal, financial or commercial advice. AK & Partners or its associates are not responsible for any action taken based on its contents.

For further queries or details, you may contact:

Mr Anuroop Omkar

Partner, AK & Partners

info@akandpartners.in