RBI AIFI KYC Directions 2025: Stricter AML/CFT Rules for Financial Institutions
The Reserve Bank of India (RBI) has marked a significant shift in its regulatory approach with the release of the Reserve Bank of India (All India Financial Institutions – Know Your Customer) Directions, 2025. Issued on 28 November 2025, this new directive is part of a broader overhaul where the central bank has replaced the unified 2016 Master Direction with ten distinct, sector-specific KYC directions.
For compliance officers, chartered accountants, and fintech founders working with India’s development finance heavyweights, this is a crucial update. It signals a move away from “one-size-fits-all” regulation toward a more tailored, clear, and enforceable framework.
Here is a complete breakdown of the new AIFI KYC Directions, 2025, and what they mean for the ecosystem.
Why RBI Issued New KYC Directions in 2025.
For nearly a decade, the Master Direction – Know Your Customer (KYC) Direction, 2016 was the bible for customer due diligence across the entire Indian financial system. However, as the ecosystem evolved—with banks, NBFCs, and development institutions operating on vastly different business models—the unified direction became cluttered with frequent amendments and specific exemptions.
On 28 November 2025, the RBI streamlined this by splitting the old framework into 10 sector-specific directions. The Reserve Bank of India (All India Financial Institutions – Know Your Customer) Directions, 2025 is one of these ten pillars.
Expert View: “The segregation of KYC norms is a masterstroke for compliance clarity. Previously, an infrastructure lender like NaBFID had to navigate rules meant for digital wallets. The 2025 Directions remove that ambiguity, allowing AIFIs to focus on high-value corporate due diligence.”
Why the split? The primary goal is clarity. By segregating the rules, an entity like SIDBI or EXIM Bank no longer needs to sift through clauses meant for payment banks or prepaid instrument issuers. The new structure allows AIFIs to focus strictly on the compliance parameters relevant to their unique developmental and refinancing roles.
Scope of the AIFI KYC Directions 2025.
The term “All India Financial Institutions” (AIFIs) refers to a specific set of apex bodies that regulate and refinance key sectors of the Indian economy. These Directions apply specifically to:
- Export-Import Bank of India (EXIM Bank).
- National Bank for Agriculture and Rural Development (NABARD).
- National Housing Bank (NHB).
- Small Industries Development Bank of India (SIDBI).
- National Bank for Financing Infrastructure and Development (NaBFID).
Overseas Applicability.
A critical point for AIFIs with a global footprint (like EXIM Bank) is the rule on overseas branches and subsidiaries. The 2025 Directions explicitly state that if an AIFI has a majority-owned subsidiary or branch abroad, it must follow the host country’s KYC/AML regulations.
The “Stricter Rule” Standard: If the host country’s KYC norms are looser than India’s, the AIFI must still implement the stricter RBI standards, provided the host country’s laws permit it. If the host country forbids implementing such strict measures, the AIFI must inform the RBI immediately.
Key KYC and AML Duties for AIFIs.
While the sector-specific nature is new, the core philosophy remains grounded in the Prevention of Money Laundering Act (PMLA). The 2025 framework reiterates several fundamental duties but with refined language.
1. The “Aadhaar Choice” Clarified.
One of the most significant clarifications in the 2025 framework is regarding Aadhaar. There has been long-standing confusion about whether financial institutions can “demand” Aadhaar.
The RBI has settled this by explicitly stating that Aadhaar is not mandatory for general KYC. AIFIs cannot force a customer to submit Aadhaar unless the customer is receiving a benefit or subsidy under a scheme notified under Section 7 of the Aadhaar Act, 2016. For all other purposes, if a customer voluntarily offers Aadhaar, it can be accepted, but it cannot be the only option.
2. Inclusive KYC for Persons with Disabilities.
The 2025 Directions take a strong stand on financial inclusion. Previously, automated “liveness checks” (used in Video KYC) often failed for customers with certain physical disabilities—for example, a system requiring a user to blink or smile might reject a customer unable to do so.
The new rules mandate that liveness checks must not result in the exclusion of persons with special needs. Furthermore, AIFIs are prohibited from rejecting a KYC application from a person with a disability without a valid, recorded reason. This “application of mind” requirement is a major step toward accountability.
3. Risk-Based Approach (RBA).
AIFIs deal with large corporate borrowers and infrastructure projects, which carry different risks than retail savings accounts. The Directions reinforce the need for a Risk-Based Approach:
- High-Risk Customers: Require Enhanced Due Diligence (EDD) and more frequent monitoring.
- Low-Risk Customers: Benefit from simplified measures and extended timelines for periodic updates.
4. Stricter Audit Trails and Enforcement.
The “Stricter” aspect of the 2025 Directions is most visible in the compliance back-office. The RBI has moved from trusting institutions to verifying them. AIFIs must now maintain a granular audit trail of every customer communication.
- Mandatory Logging: Every “re-KYC” notice sent to a customer (email, SMS, or letter) must be logged in the system. If an account is frozen, the AIFI must prove they sent at least three specific notices before taking action.
- Beneficial Ownership (BO) Scrutiny: The definitions for identifying the “ultimate natural person” behind a corporate borrower have been tightened. AIFIs can no longer rely on simple self-declarations for complex ownership structures; independent validation is now the norm.
💡 Did You Know?
- First of its Kind: While KYC norms have existed in India since 2002, this is the first time in history that “All India Financial Institutions” have their own dedicated KYC rulebook separate from commercial banks.
- The NaBFID Factor: The newest AIFI, NaBFID (National Bank for Financing Infrastructure and Development), established in 2021, is a key beneficiary of these rules, as its massive infrastructure loans require very different due diligence compared to a standard home loan.
- Global Alignment: The “Stricter Rule” standard for overseas branches is directly adopted from the Financial Action Task Force (FATF) recommendations, ensuring India remains compliant with global anti-money laundering standards.
Key New Features of the 2025 Framework.
The November 2025 notification doesn’t just cut-copy-paste the old rules; it integrates recent amendments to modernize the process.
Consolidated KYC Policy Requirements.
In the past, the requirements for what a KYC policy must contain were scattered across various circulars. The 2025 AIFI Directions consolidate these into a single section. An AIFI’s KYC policy must now explicitly cover:
- Customer Acceptance Policy (CAP)
- Risk Management
- Customer Identification Procedures (CIP)
- Monitoring of Transactions
Beneficial Ownership (BO).
For AIFIs, whose clients are often complex legal entities (companies, trusts, partnership firms), identifying the Beneficial Owner is critical. The 2025 rules provide sharper definitions on identifying the natural persons who ultimately own or control a legal entity, aligning perfectly with the latest PMLA rules.
| Feature | 2016 Framework | 2025 AIFI Directions |
| Structure | Generic Master Direction for all REs | Dedicated AIFI-specific Direction |
| Policy Clarity | Elements scattered across circulars | Consolidated policy requirements |
| Inclusivity | Generic non-discrimination | Explicit “Liveness Check” safeguards for PwDs |
Practical Impact for Institutions and Customers.
For AIFIs and Compliance Teams.
The immediate task is documentation and system readiness. Chief Compliance Officers at institutions like SIDBI or NABARD must update their internal policies to cite the “RBI (All India Financial Institutions – Know Your Customer) Directions, 2025”. More importantly, IT systems must be upgraded to handle the new audit trail requirements—ensuring that every “application of mind” decision (like approving a PwD’s video KYC) is digitally recorded for future RBI inspections.
For Customers and Borrowers.
For the corporate entities and infrastructure firms borrowing from AIFIs, the experience should become smoother.
- Less Friction: The “Risk-Based Approach” means that low-risk entities won’t be pestered for frequent re-KYC documents unnecessarily.
- No “Sudden Freeze”: The broader 2025 reforms have introduced extended timelines for low-risk customers to update their KYC. This prevents the operational nightmare of a frozen account stopping a major project disbursement.
The Road Ahead.
The issuance of the RBI (All India Financial Institutions – Know Your Customer) Directions, 2025 is a welcome maturation of India’s regulatory landscape. By acknowledging that a development bank is not the same as a payment app, the RBI has empowered AIFIs to implement KYC that is rigorous yet relevant.
For professionals in the sector, the coming months will be about granular updates—amending policy documents, training staff on the “inclusion” mandates, and ensuring that the move to sector-specific rules translates into actual operational efficiency.
Frequently Asked Questions (FAQs) on RBI AIFI KYC Directions 2025.
Who does the RBI AIFI KYC Directions 2025 apply to?
Is Aadhaar mandatory for KYC under the new 2025 rules?
What is the new rule for Video KYC for differently-abled persons?
How do the new rules affect overseas branches of Indian AIFIs?
What is the deadline for updating KYC for low-risk customers?
Why did RBI replace the 2016 Master Direction with new 2025 rules?
Disclaimer: The information provided in this article regarding the RBI AIFI KYC Directions 2025 is for general informational purposes only and does not constitute legal or professional advice. While we strive for accuracy, RBI regulations are subject to updates. Readers are advised to consult the official RBI notifications or a qualified professional before making compliance decisions.
📚 Trusted Authorities & References
To verify the information presented in this article, readers may refer to the official notifications and acts below:
- Reserve Bank of India: Official Notification on “Master Direction – Know Your Customer (KYC) Directions, 2016” (Superseded/Re-organized in 2025). Visit RBI Official Site
- The Gazette of India: The Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Act, 2016. Read the Act
- Prevention of Money Laundering Act (PMLA): Updates and Rules regarding Beneficial Ownership. View PMLA Guidelines
Discover more from TaxGst.in
Subscribe to get the latest posts sent to your email.
C.K. Gupta
Hello, I am C.K. Gupta owner of Taxgst.in, a seasoned finance professional with a Master of Commerce degree and over 20 years of experience in accounting and finance. My extensive career has been dedicated to mastering the intricacies of financial management, tax consultancy, and strategic planning. Throughout my professional journey, I have honed my skills in financial analysis, tax planning, and compliance, ensuring that all practices adhere to the latest financial regulations. My expertise also extends to auditing, where I focus on maintaining accuracy and integrity in financial reporting. I am passionate about using my knowledge to provide insightful and reliable financial advice, helping businesses optimize their financial strategies and achieve their economic goals. At Taxgst.in, I aim to share valuable insights that assist our readers in navigating the complex world of taxes and finance with ease.
