The move comes as India continues to face increasing climate risks, with extreme weather events causing widespread damage to livelihoods, infrastructure, and agricultural output.
RBI Proposes Principle-Based Resolution Framework
According to the draft guidelines, banks will be required to factor in the impact of natural calamities while framing their credit policies. The RBI said the proposed framework follows a principle-based approach, giving regulated entities (REs) flexibility in designing and implementing resolution plans.
“The guidelines envisage a principle-based resolution regime, providing complete discretion to the RE with respect to the design and implementation of the resolution plan,” the central bank stated.
This means lenders can tailor relief measures based on the severity of the calamity and the borrower’s financial condition, rather than following a rigid, one-size-fits-all approach.
Relief Measures Proposed for Affected Borrowers
As per the RBI’s draft rules, banks may offer several relief options to borrowers impacted by natural disasters. These include:
- Rescheduling of loan repayments
- Conversion of accrued interest into a separate credit facility
- Granting of moratoriums on repayment
- Sanctioning of additional finance to ease financial stress
The RBI clarified that such relief would be provided based on the lender’s assessment of the borrower’s condition and repayment capacity.
Who Will Be Eligible for Relief?
The proposed framework applies to borrowers who have not defaulted for more than 30 days at the time of the calamity. This ensures that the relief measures are directed at borrowers facing genuine stress due to unforeseen natural events rather than long-term defaulters.
The central bank emphasised that the objective is to provide timely support while maintaining overall credit discipline in the banking system.
Climate Risks Prompt Policy Shift
India’s vulnerability to climate-related disasters has increased significantly in recent years. As per the Germanwatch Global Climate Risk Index 2025, India ranks sixth among the most climate-vulnerable countries globally.
The report noted that between 1993 and 2022, the country experienced more than 400 extreme weather events, leading to nearly 80,000 deaths and economic losses estimated at around $180 billion.
States such as Punjab and Assam have witnessed repeated crop damage due to floods, while regions like Uttarakhand and Jammu and Kashmir have suffered large-scale destruction from landslides and flash floods.
When Will the New Rules Come Into Effect?
The RBI has proposed April 1 as the implementation date for the new framework. The central bank has invited feedback from stakeholders and the general public until February 17 before finalising the guidelines.
Once implemented, the rules are expected to improve the banking sector’s preparedness for climate-related disruptions and offer structured relief to borrowers affected by natural disasters.
Inputs from agencies