JSA Newsletter | Finance | August 2026 Edition

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August 2026 witnessed significant regulatory activity across India’s financial services sector. The Reserve Bank of India (“RBI”), the Securities and Exchange Board of India (“SEBI”), the Ministry of Finance (“MoF”), and the Ministry of Law and Justice (“MoLJ”) introduced several important regulatory measures.

In the banking sector, RBI amended the regulatory framework governing the conduct of Regulated Entities (“REs”) in the recovery of loans and engagement of recovery agents. MoF issued an exemption notification under the Banking Regulation Act, 1949 (“BR Act”) concerning the treatment of unamortised expenditure related to income recognition under the ‘Effective Interest Rate’ method.

On the securities front, SEBI modified the regulatory framework for Online Bond Platform Providers (“OBPPs”) to promote ease of doing business. It also enabled the sharing of Know Your Client (“KYC”) information with entities regulated by the International Financial Services Centres Authority (“IFSCA”). Further, SEBI revised the framework for calculating Net Distributable Cash Flows (“NDCFs”) for Infrastructure Investment Trusts (“InvITs”) to permit the add-back of debt-funded major maintenance expenses for road projects. It also permitted acceptance of digitally signed power of attorney from Foreign Portfolio Investors (“FPIs”) to facilitate digitalisation of the FPI onboarding process. SEBI also revised the application form for registration of mutual funds, consolidating the existing registration process into a single application form structured in 2 (two) stages.

Further, MoLJ enacted the Micro, Small and Medium Enterprises Development (Amendment) Act, 2026 (“MSMED Amendment Act”) to enhance the framework for Micro, Small, and Medium Enterprises (“MSMEs”). Key changes include mandatory routing of invoice settlements through the Trade Receivables Discounting System (“TReDS”) and strengthened dispute resolution mechanisms through Micro and Small Enterprises Facilitation Councils (“MSEFCs”).

RBI update

Amendment directions on the conduct of REs in recovery of loans and engagement of recovery agents

RBI, vide press release dated August 6, 2026, has issued final amendment directions on the ‘Conduct of Regulated Entities in Recovery of Loans and Engagement of Recovery Agents’ (“Amendment Directions”), effective from January 1, 2027.

The Amendment Directions followed a 2 (two) stage public consultation process, with an initial draft issued on February 12, 2026, followed by a revised draft issued on May 20, 2026. Following substantial feedback from the public stakeholders, the effective date was extended from October 1, 2026, to January 1, 2027, to allow the REs adequate time for system modifications, workflow adjustments and training of recovery agents.

Some of the key provisions are as follows:

• Fair treatment: Comprehensive requirements governing the fair treatment of borrowers during the loan recovery process, establishing strict standards of conduct of REs, their employees and recovery agents.
• Agent engagement and certification: Enhanced due diligence, training and mandatory certification from the Indian Institute of Banking and Finance (“IIBF”) for all recovery agents, alongside adherence to prescribed codes of conduct. As a respite, REs previously exempt from the IIBF certification requirement have been granted a period of 1 (one) year from the effective date to allow their already engaged recovery agents to obtain certification.
• Technology based recovery safeguards: Stringent protocols for deploying technology based mechanisms for recovery of loan (such as device locking) through a borrower’s financed mobile device, including certification of such mechanisms from the Original Equipment Manufacturer (“OEM”) or the operating system platform, graduated restrictions on device functionalities, and compensation to borrowers (capped at the loan amount) for wrongful restriction or delay in reversal of restrictions.
• Taking possession of security: Where a RE incorporates a possession clause in its loan agreement and relies on it for enforcing its rights, it must ensure that the clause is legally valid and clearly brought to the borrower’s notice at the time of the execution. Accordingly, the terms of such loan agreement should contain provisions regarding: (a) notice period before taking possession; (b) circumstances under which the notice period can be waived; (c) procedure for taking possession of the security; (d) final opportunity to be given to the borrower for repayment of loan before the sale/auction of the security; (e) procedure for returning the possession of the security back to the borrower; and (f) procedure for sale/auction of the security.
• Periodic review: RE is required to have a management structure in place to monitor and control the activities of its recovery agencies and to ensure that they refrain from actions that could jeopardise RE’s reputation and integrity. It should also undertake a periodic review to bring in improvements.
• Applicability: The Amendment Directions have been issued through separate directions applicable to all REs, including commercial banks, small finance banks, local area banks, regional rural banks, urban co-operative banks, rural co-operative banks, All India Financial Institutions (“AIFIs”), Non-Banking Financial Companies (“NBFCs”) and Housing Finance Companies (“HFCs”).

Key takeaway: The RBI has issued the Amendment Directions on conduct-related matters in recovery of loans and engagement of recovery agents which applies to all REs and becomes effective from January 1, 2027. The implementation date was extended from October 1, 2026, to allow REs adequate time to adapt to the overhauled framework. Key features include compulsory IIBF certification for recovery agents (with a 1 (one)year grace period for existing agents), OEM certification for technology-based recovery mechanisms (like device locking), and compensation to borrowers for wrongful device restrictions.

SEBI updates

SEBI revises operational framework for municipal debt securities

SEBI, vide circular dated August 11, 2026, has introduced 3 (three) key operational updates to the regulatory framework governing listed municipal debt securities, by amending the SEBI (Issue and Listing of Municipal Debt Securities) Regulations, 2015. Municipal debt securities are fixed income financial instruments issued by urban local bodies and municipal corporations of cities to raise funds for public infrastructure projects. The key changes are as follows:

• Lower face value: An issuer can now set the face value of listed municipal debt securities, proposed to be issued on a private placement basis, at either INR 1,00,000 (Indian Rupees one lakh) or INR 10,000 (Indian Rupees ten thousand). Previously, the face value was disclosed in the offer document or placement memorandum in the manner as specified by SEBI. The securities issued at a face value of INR 10,000 (Indian Rupees ten thousand) must have a fixed maturity period and a simple structure without any structured obligations. The trading lot of such listed securities, traded on a stock exchange, must always be equal to their face value.
• Enhanced escrow framework: Where the listed entity is a pooled finance vehicle or a Special Purpose Vehicle (“SPV”), set up under the Pooled Finance Development Fund Scheme of the Government of India, it is required to maintain a 2 (two) step escrow account mechanism. The SPV or pooled finance vehicle must maintain a centralised interest payment account and a sinking fund account, whereas the constituent municipalities would be required to maintain their own respective individual interest payment and sinking fund accounts, which would feed into the central entity’s account as per the agreement between them and the SPV. The circular also mandates that the SPV should hold a reserve amount equal to one year’s interest obligations in the interest payment account throughout the tenor of the securities.
• Relaxed timelines for submitting financial results: To alleviate administrative burdens for municipal bodies, the deadline for submission of half-yearly unaudited financial results has been extended from 45 (forty-five) days to 60 (sixty) days from the end of the first half year. Further, the deadline for submission of annual audited financial results has been extended from 60 (sixty) days to 90 (ninety) days from the end of the financial year.

Key takeaway: SEBI has revised the operational framework for municipal debt securities, standardising face values at INR 1,00,000 (Indian Rupees one lakh) or INR 10,000 (Indian Rupees ten thousand), introducing a 2 (two) step escrow mechanism for pooled finance vehicles, and extending deadlines for submission of half-yearly (60 (sixty) days) and annual (90 (ninety) days) financial results.

Modification in the regulatory framework for OBPPs including measures for promoting ease of doing business

SEBI, vide circular dated August 14, 2026, has modified the regulatory framework for entities operating as OBPPs under Regulation 51A of the SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021. The circular addresses modifications made in the SEBI Master Circular for Issue and Listing of Non-Convertible Securities, Securitised Debt Instruments, Security Receipts, Municipal Debt Securities and Commercial Paper dated October 15, 2025.

Some of the key highlights of the circular are as follows:

• IFSCA integration: OBPPs are now permitted to offer products, securities, or services regulated by IFSCA, provided that such offerings are made in the manner prescribed for SEBI-registered stock brokers, operating within the Gujarat International Finance Tec-City International Financial Services Centre. Such offerings must be in compliance with applicable guidelines under the Foreign Exchange Management Act, 1999, including overseas investment rules and the limits under the Liberalised Remittance Scheme. All such products/securities/services must be clearly labelled as international or overseas instruments to prevent confusion with domestic debt securities.
• Permissibility of tax-exempt 54EC bonds: OBPPs can now offer bonds issued under section 54EC of the Income-tax Act, 1961 or Section 85 of the Income-tax Act, 2025. These can be hosted either on a different tab on the online bond platform or on any other website/platform. OBPPs must provide a disclaimer to highlight that these are tax-specific instruments, and any grievances would fall under the purview of the issuer of such bonds, and not with SEBI. OBPPs are also required to prominently disclose the core features of 54EC bonds, in relation to the following: eligible issuers, lock-in period, investment limit, non-transferable status, tax features, application size, and exemption from listing requirements under the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.
• Compliance mandate: The compliance officer requirements for OBPPs have been revised, replacing the earlier requirement of appointing a company secretary as a compliance officer. OBPPs must now appoint a compliance officer in accordance with the SEBI (Stock Brokers) Regulations, 2026. Such an officer must hold the requisite certification, specifically, the NISM-Series-III-A: Securities Intermediaries Compliance (Non-Fund) Certification Examination, as prescribed by SEBI for stock brokers, from time to time.

Key takeaway: SEBI has modified the regulatory framework for OBPPs to promote ease of doing business by permitting OBPPs to offer products/securities/services regulated by IFSCA and bonds issued under section 54EC of the Income-tax Act, 1961 or Section 85 of the Income-tax Act, 2025, while updating compliance officer requirements to align with the SEBI (Stock Brokers) Regulations, 2026.

Framework for calculation of NDCFs for InvITs

SEBI, vide circular dated August 14, 2026, has revised the framework for calculation of NDCFs for InvITs and their holding company/SPVs under the Master Circular for InvITs dated July 11, 2025. The revised framework allows InvITs to add back payments made towards major maintenance expenses for road projects, to the extent funded by external debt for the purposes of calculating NDCFs.

The framework, inter alia, requires unitholder approval for availing external borrowing for major maintenance, appropriate disclosures regarding the proposed borrowing and its impact on distributions, certification by the statutory auditor that the major maintenance expenses are in accordance with the concession agreement and funded through external borrowings, and separate disclosure of borrowing attributable to major maintenance expenses in the InvIT’s financial and periodic reports. The amendments also clarify that surplus cash arising from such debt-funded major maintenance expenses may be distributed subject to the specified conditions.

Key takeaway: SEBI has revised the NDCF framework for InvITs to allow add-back of payments made towards major maintenance expenses for road projects to the extent funded by external debt for the purposes of calculating NDCFs, subject to unitholder approval, statutory auditor certification, and enhanced disclosure requirements. This is expected to facilitate better cash flow management and distribution practices for InvITs involved in road and bridge infrastructure projects.

Revision of application form for mutual fund registration

SEBI, vide circular dated August 17, 2026, has revised the application form for registration of mutual funds.

• Single consolidated document: The existing requirement of submitting Form A for in-principle approval to the sponsor for setting up a mutual fund, and Forms C and D for final registration of a mutual fund, has been replaced by a single revised and consolidated application form for registration of mutual funds. The revised Form A is structured into 2 (two) stages, where stage I covers the in-principle approval application and stage II covers the application for final registration of the Asset Management Company (“AMC”).
• Stage I (in-principle approval): Stage I requires the sponsor to furnish its identification and constitution details, shareholding pattern and ultimate beneficial owner details, capital structure, proposed net worth contribution to the AMC, and audited financial statements for the last 5 (five) financial years along with the item-wise compliance under the elected eligibility route.
• Stage II (final AMC registration): Stage II requires, inter alia, particulars of the AMC (including its name, capital structure, net worth, board composition and key management personnel), additional particulars where an existing AMC is proposed and annexures covering the detailed business plan, information technology infrastructure, cybersecurity measures, the business continuity plan, disaster recovery framework, conflict of interest and insider trading policies.

Key takeaway: SEBI has consolidated the mutual fund registration process into a single revised Form A, structured into 2 (two) stages: stage I for in-principle approval (covering sponsor identification, shareholding, capital structure and financial statements) and stage II for final AMC registration (covering AMC particulars, business plan, information technology infrastructure and compliance policies).

Acceptance of digitally signed power of attorney from FPIs

SEBI, vide circular dated August 20, 2026, has amended the KYC requirements applicable to FPIs under the Master Circular for FPIs, Designated Depository Participants and Eligible Foreign Investors dated May 30, 2024, to facilitate digitalisation of the FPI onboarding process. FPIs can now submit the power of attorney granted to custodians, either in the existing form duly notarised and/or apostilled or consularised or by executing the same using a digital signature in accordance with the Information Technology Act, 2000. Where the power of attorney is executed using such digital signature, notarisation, apostillisation or consularisation is not required.

Key takeaway: SEBI has facilitated digitalisation of the FPI onboarding process by allowing FPIs to submit power of attorney to custodians either in the traditional notarised, apostilled or consularised form, or by using a digital signature in accordance with the Information Technology Act, 2000.

Enabling sharing of information by KYC Registration Agencies with entities regulated by IFSCA

SEBI, vide circular dated August 20, 2026, specified the IFSCA for the purpose of facilitating interoperability and sharing of information between SEBI registered KYC Registration Agencies (“KRAs”) and entities regulated by IFSCA. In terms of Regulation 16A(1) of the SEBI (KYC (Know Your Client) Registration Agency) Regulations, 2011 (“SEBI KRA Regulations”), entities regulated by other regulators in the financial sector specified by SEBI may access the system of KRAs for undertaking KYC of their clients who engage them for financial services. Some of the key features of the circular are as follows:

• Compliance with KYC Norms for the securities market: All such entities accessing the system of KRAs must follow the guidelines specified in the Master Circular on KYC norms for the securities market dated October 12, 2023.
• Data security requirements for FPI clients: In respect of clients registered as FPIs, all entities accessing the system of KRAs must follow the guidelines for ‘Data Security’ specified in SEBI’s Master Circular for FPIs, Designated Depository Participants and Eligible Foreign Investors dated May 30, 2024.

Key takeaway: SEBI has enabled sharing of KYC information between SEBI registered KRAs and entities regulated by IFSCA to facilitate interoperability, subject to compliance with applicable KYC norms and data security guidelines.

MoF update

Exemption notification under the BR Act for treatment of unamortised expenditure

MoF, vide notification dated August 6, 2026, has issued an exemption notification under the BR Act concerning the treatment of unamortised expenditure related to income recognition under the ‘Effective Interest Rate’ (“EIR”) method.

The Central Government has declared that the provisions of Section 15(1) of the BR Act (which specify that no banking company will pay any dividend on its shares until all capitalised expenses have been written off) will not apply to a banking company in so far as it relates to the treatment of unamortised expenditure on account of recognition of income under the EIR method as specified in the RBI (Commercial Banks – Asset Classification, Provisioning and Income Recognition) Directions, 2026, issued vide circular dated April 27, 2026.

Key takeaway: MoF has exempted banking companies from the provisions of Section 15(1) of the BR Act to the extent it relates to the treatment of unamortised expenditure on account of income recognition under the EIR method as specified in the RBI’s Asset Classification, Provisioning and Income Recognition Directions, 2026.

MoLJ update

MSMED Amendment Act

MoLJ, vide notification dated August 13, 2026, has enacted the MSMED Amendment Act, following receipt of presidential assent on August 13, 2026, amending the Micro, Small and Medium Enterprises Development Act, 2006 (“MSMED Act”). The MSMED Amendment Act aims to strengthen the framework for MSMEs by enhancing payment discipline, ease of availing benefits, facilitating dispute resolution, and promoting the use of TReDS for invoice settlements by Government entities.

Some of the key features of the amendment are as follows:

• MSME classification: Section 7 of the MSMED Act, which stated the thresholds for investment and turnover for determining Micro, Small and Medium Enterprises in the MSMED Act itself, has been amended, and as per the amended provisions, the Central Government will now, by a separate notification, specify the thresholds for categorising Micro, Small and Medium Enterprises. The new Section 7 has, however, clarified that the Central Government will take into account the criteria of both: (a) investment in plant, machinery or equipment; and (b) turnover, while notifying the thresholds. Central Government notification in this regard is awaited.
• Mandatory TReDS routing for MSME invoices: The amendment introduces a new Section 15A, which mandates that every Central Public Sector Enterprise (“CPSE”) must route the settlement of invoices in respect of procurement of goods or services from MSMEs, through a TReDS platform authorised by the Reserve Bank of India. The Central Government may, by notification, extend this requirement to other authorities, bodies, or entities. The State Government may similarly notify State Public Sector Enterprises and other entities to route invoice settlements through TReDS.
• MSME registration: Section 8 of the MSMED Act has been substituted to provide for a free and voluntary digital registration mechanism for MSMEs. The Central Government will notify a national digital platform for registration of MSMEs to enable them to avail benefits under the MSMED Act, while State Governments may notify separate State-level digital platforms for registration to enable MSMEs to avail applicable State Government benefits.
• Time-bound dispute resolution and online proceedings: The amendment introduces time-bound dispute resolution under Section 18, including: (a) completion of mediation within 90 (ninety) days from the date fixed for first appearance; (b) referral to arbitration within 30 (thirty) days from the date of termination of mediation; and (c) issuance of arbitral awards within 90 (ninety) days from the date of completion of pleadings. The amendment also provides for online dispute resolution mechanisms through audio-video and other electronic means and enables recovery of mediated settlement agreements.
• Additional compliance and enforcement changes: The amendment also introduces: (a) a mandatory pre-deposit of 75% of the amount awarded or payable under a mediated settlement agreement as a condition for an application to set aside a decree, award or mediated settlement agreement, with at least 50% of the deposited amount to be paid to the supplier where such application remains pending for more than 6 (six) months; (b) a requirement for CPSEs and other notified entities to disclose details of MSME invoices routed and settled through TReDS; (c) the decriminalisation and revision of penalty provisions, replacing conviction-based penalties with graded civil penalties and designating the Development Commissioner as the adjudicating officer; and (d) enhanced provisions relating to the establishment and composition of the MSEFCs by the State Governments.

Key takeaway: The MSMED Amendment Act strengthens the payment and dispute resolution framework for MSMEs by mandating the use of TReDS for CPSEs and other notified entities, introducing time-bound mediation and arbitration, enhancing enforcement through recovery of settlements, imposing mandatory pre-deposit requirements for setting aside awards, and revising penalty provisions. These amendments aim to improve cash flow for MSMEs, ease of availing government benefits and provide a more robust mechanism for recovery of delayed payments.

JSA updates

Modernising the portfolio management framework: SEBI’s comprehensive review of the portfolio managers regulations

The July 2026 consultation paper issued by SEBI proposes a comprehensive overhaul of the SEBI (Portfolio Managers) Regulations, 2020, to align India’s rapidly expanding Portfolio Management Services (“PMS”) industry with evolving investor needs while reinforcing investor protection. The proposals expand the investment universe to include overseas securities, unlisted debt, and broader derivatives exposure. It introduces a lower-threshold mutual fund-only PMS category for mass-affluent investors, simplifies regulatory provisions, strengthens governance and capital requirements, and improves investor mobility through streamlined switching between portfolio managers. Overall, SEBI seeks to create a more proportionate, globally competitive and innovation-friendly regulatory framework that balances operational flexibility with stronger accountability and risk management.

For a detailed analysis, please refer to the JSA Prism of August 5, 2026.

From access to agility: The August 2026 reform agenda for Real Estate Investment Trusts and InvITs

On August 4, 2026, and August 6, 2026, SEBI released 2 (two) consultation papers concerning the Real Estate Investment Trusts (“REITs”) and InvITs. The 2 (two) consultation papers are proposing a series of operational changes to the REIT and InvIT regulations, ranging from formalisation of a depository receipts framework to multiple ease of doing business measures, widening capital access while easing regulatory and operational friction. Read together, these papers signal a regulatory approach that treats REITs and InvITs as an asset class that is maturing enough to warrant calibration rather than caution in oversight.

For a detailed analysis, please refer to the JSA Prism of August 24, 2026.

Personal insolvency proceedings cannot be used to frustrate proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002

The National Company Law Tribunal, Mumbai Bench (“NCLT”), in Mrs. Vandana Ravindra Chaudhari vs. Union Bank of India[1], has reiterated that an application under Section 94 of the Insolvency and Bankruptcy Code, 2016 (“IBC”) cannot be used as a device to scuttle concluded or substantially progressed proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 by merely securing the benefit of the interim moratorium under Section 96 of the IBC. The NCLT held that where the timing and surrounding circumstances demonstrate that the insolvency application has been filed solely to stall recovery proceedings, such an application is liable to be rejected.

For a detailed analysis, please refer to the JSA Prism of August 14, 2026.

This Newsletter has been prepared by:

Anish Mashruwala Partner

Aditi Sehgal Partner

Harshil Shubham Principal Associate

Rithika Rarichan Associate

For more details, please contact km@jsalaw.com.

[1] In Inv P(IBC) No. 22/(MB)/2026 and IA(IBC) No. 502/(MB)2026 in CP(IB) No. 794/MB/2025 (decided on June 2, 2026)