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Credit Facilities – Finance to Non-Banking Financial Companies (NBFCs)

Reserve Bank of India (RBI) has issued directions on credit facilities offered by various regulated entities. This article summarises the directions applicable in respect of finance to Non-Banking Financial Companies (NBFCs).

To whom are the directions applicable?

The directions are applicable to the following Regulated Entities (REs) –

  • Commercial Banks 
  • Small Finance Banks (SFBs)
  • Primary (Urban) Co-operative Banks (UCBs)
  • All India Financial Institutions (AIFIs) regulated by RBI –
    • 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)

What are the conditions on finance to NBFCs?

Commercial Banks and SFBs

  • The bank shall extend need based working capital facilities as well as term loans to NBFCs registered with the RBI and engaged in infrastructure financing, equipment leasing, hire-purchase, loan, factoring and investment activities. 
  • The bank shall also extend finance to NBFCs against second hand assets financed by them.
  • For NBFCs which do not need registration with the RBI, the bank shall take its credit decisions on the basis of usual factors like the purpose of credit, nature and quality of underlying assets, repayment capacity of borrowers as also risk perception, etc.

UCBs

UCBs shall not finance NBFCs, other than those engaged in hire-purchase / leasing, subject to obtaining prior approval of the Registrar of Co-operative Societies concerned before admitting such leasing / hire purchase companies as members for the purpose of lending.

What are the exposure limits for finance to NBFCs?

Commercial Banks

  • A bank’s exposure to a single NBFC (excluding gold loan company) shall be restricted to 20% of its eligible capital base.
  • A bank’s exposure to a single NBFC which is predominantly engaged in lending against collateral of gold jewellery (i.e. such loans comprising 50% or more of its financial assets), shall not exceed 7.5% of the bank’s capital funds (Tier I plus Tier II Capital). However, this exposure ceiling may go up by 5%, i.e., up to 12.5% of a bank’s capital funds if the additional exposure is on account of funds on-lent by such NBFCs to the infrastructure sector.
  • A bank’s exposure to a group of connected NBFCs or group of connected counterparties having NBFCs in the group shall be restricted to 25% of its Tier I Capital.

SFBs

  • A bank’s loan size and investment exposure to a single NBFC and group NBFC obligor shall not exceed 10% and 15% of its capital funds, respectively.
  • A bank’s exposure to a single NBFC which is predominantly engaged in lending against collateral of gold jewellery (i.e. such loans comprising 50% or more of its financial assets), shall not exceed 7.5% of the bank's capital funds. 

UCBs

  • UCBs, with working capital funds aggregating to ₹25 crore and above, may finance the NBFC - Investment and Credit Company (NBFC-ICC), subject to the following limits –

Type of NBFC Maximum Limit on Bank Finance
NBFC-ICC having at least 75% of their assets in equipment leasing and hire purchase, and 75% of their gross income from these two types of activities as per the last audited balance sheet of the companies. 3 times of the Net Owned Funds (NOF) of the NBFC or single borrower exposure limit of the lending UCB, whichever is lower.
NBFC-ICC carrying out equipment leasing and hire purchase other than those specified above. 2 times of the NOF of the NBFC or single borrower exposure limit of the lending UCB, whichever is lower.

  • The maximum limit on aggregate bank finance to an NBFC should be within the overall ceiling of borrowing by NBFCs, upto 10 times of their NOF.
  • Bank finance to leasing concerns should be restricted only to ‘full payout’ leases i.e., leases where the cost of the asset is fully recovered during the primary lease period and cover purchases of only new equipment.
  • Lease rentals due during next 5 years should alone be taken into account for the purpose of lending.

AIFI

  • The exposure to a single counterparty shall not exceed 20% of the AIFI’s available eligible capital base. The Board of the AIFI may allow additional 5% exposure subject to prescribed conditions.
  • The AIFI may exceed the exposure limit by 5% of its Tier-I capital for exposure to a single counterparty, if the additional exposure is on account of infrastructure ‘loan and / or investment’.
  • Single counterparty limit shall not exceed 25% in any case.
  • The exposure to a group of connected counterparties shall not exceed 25% of the AIFI’s available eligible capital base.
  • An AIFI may exceed the exposure limit by 10% of its Tier I capital for exposure to a group of connected counterparties, if the additional exposure is on account of infrastructure ‘loan and / or investment’.


References

Reserve Bank of India. (2025, November 28). 'Reserve Bank of India (All India Financial Institutions – Concentration Risk Management) Directions, 2025'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12978&Mode=0

Reserve Bank of India. (2025, November 28). 'Reserve Bank of India (All India Financial Institutions – Credit Facilities) Directions, 2025 (updated as on April 1, 2026)'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12981&Mode=0#28

Reserve Bank of India. (2025, November 28). 'Reserve Bank of India (Commercial Banks – Concentration Risk Management) Directions, 2025 (Updated as on April 01, 2026)'. Retrieved from https://www.rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=13152

Reserve Bank of India. (2025, November 28). 'Reserve Bank of India (Commercial Banks – Credit Facilities) Directions, 2025 (Updated as on April 01, 2026)'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=13156&Mode=0

Reserve Bank of India. (2025, November 28). 'Reserve Bank of India (Small Finance Banks – Concentration Risk Management) Directions, 2025 (Updated as on January 01, 2026)'. Retrieved from https://www.rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=13120

Reserve Bank of India. (2025, November 28). 'Reserve Bank of India (Small Finance Banks – Credit Facilities) Directions, 2025 (Updated as on April 01, 2026)'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=13124&Mode=0

Reserve Bank of India. (2025, November 28). 'Reserve Bank of India (Urban Co-operative Banks – Credit Facilities) Directions, 2025 (Updated as on April 01, 2026)'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=13028&Mode=0


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