Skip to main content

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


Follow at - Telegram   Instagram   LinkedIn   X   Facebook

Labels:

Comments

Post a Comment

Popular Posts

Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR)

Reserve Bank of India (RBI) has issued the directions on maintenance of Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) by banks. To whom are the directions applicable? The directions are applicable to the following Regulated Entities (REs) – Commercial Banks  Small Finance Banks (SFBs) Payments Banks (PBs) Local Area Banks (LABs) Regional Rural Banks (RRBs) Primary (Urban) Co-operative Banks (UCBs) Rural Co-operative Banks – State Co-operative Banks (StCBs) District Central Co-operative Banks (DCCBs) What is CRR? Every bank shall maintain in India by way of cash reserve, a sum equivalent to such percent of its Net Demand and Time Liabilities (NDTL) in India, as the RBI in terms of Section 42(1) of the RBI Act, 1934 (for scheduled banks) and Section 18(1) of the Banking Regulation Act (BR Act), 1949 (for non-scheduled banks) [including provisions of Section 18(1) of the BR Act as applicable to co-operative banks], may specify. What is incremental CRR? In terms of Secti...
Post a Comment
Read more

Special Rupee Vostro Accounts (SRVAs)

Reserve Bank of India (RBI) has consolidated the guidelines governing Special Rupee Vostro Accounts (SRVAs). Who can open and maintain Special Rupee Vostro Accounts (SRVAs)? Authorised Dealer (AD) banks in India may open Special Rupee Vostro Accounts (SRVAs) of its branch outside India or a bank resident outside India. Which transactions can be settled through SRVA? The settlement of cross-border trade transactions through SRVA is an additional arrangement for invoicing, payment and settlement of exports and imports in Indian Rupee (INR).  All permissible capital and current account transactions under Foreign Exchange Management Act (FEMA) may be settled through the SRVA.  AD banks maintaining SRVA are permitted to open additional current account for exporter / importer, exclusively for settlement of export / import transactions. What can be the source and use of funds in SRVA? SRVA may be funded by way of inward remittances or transfer from other repatriable INR accounts in t...
Post a Comment
Read more

Credit Cards and Debit Cards

Reserve Bank of India (RBI) has issued directions on issuance of credit cards and debit cards. To whom are the directions applicable? The directions are applicable to the following Regulated Entities (REs) – Commercial Banks  Small Finance Banks (SFBs) Regional Rural Banks (RRBs) Primary (Urban) Co-operative Banks (UCBs) Non-Banking Financial Companies (NBFCs) for all layers – NBFC-Investment and Credit Companies (NBFC-ICC) NBFC-Factor  NBFC-Micro Finance Institutions (NBFC-MFI)  Housing Finance Company (HFC)  What is a credit card? Credit Card is a physical / virtual payment instrument issued with a pre-approved revolving credit limit that can be used to purchase goods and services or draw cash advances. What is a debit card? Debit Card is a physical / virtual payment instrument linked to a Savings Bank / Current Account which can be used to withdraw cash, make online payments, do Point of Sale (PoS) terminal / Quick Response (QR) code transactions, fund transfer, e...
Post a Comment
Read more

Payment of Agency Commission to Agency Banks (ABs) and Disbursement of Government Pension by ABs

Reserve Bank of India (RBI) has issued guidelines on the conduct of Government business by Agency Banks (ABs), payment of agency commission to ABs and disbursement of Government pension by ABs. Who are ABs? ABs mean all Public Sector Banks (PSBs), scheduled Private Sector Banks (PVBs), scheduled Payments Banks (PBs), and scheduled Small Finance Banks (SFBs) appointed by the RBI under Section 45 of the RBI Act, 1934, by mutual agreement, to carry out Government banking business of the Central Government (CG) / State Governments (SGs). What is agency commission? Agency commission means the remuneration paid by the RBI to an AB in consideration of it acting as an agent of the RBI in the conduct of general banking business of the CG and the SGs at the places and in the manner specified in the agreement between the RBI and the bank, with the exception of the functions relating to the management of the public debt. What are the guidelines on appointment of ABs? Any eligible bank which intend...
Post a Comment
Read more

Highlights of RBI Annual Report 2025-26 – Chapter 7 to 12

Reserve Bank of India (RBI) has published its annual report for the financial year 2025-26. In a series of articles, we will go through the highlights of the report. This is the fifth and final article in the series.  Chapter 7 – Public Debt Management The ways and means advances (WMA) limit for the Government of India (GoI) for H1:2025-26 (April to September 2025) was fixed at ₹1,50,000 crore and for H2:2025-26 (October 2025 to March 2026) was fixed at ₹50,000 crore. The RBI entered into an agreement with the Government of National Capital Territory of Delhi (GNCTD), under Section 21A(1) of the RBI Act, 1934, to carry on the general banking business of GNCTD and manage its rupee public debt. The WMA limit of GNCTD was set at ₹890 crore, taking the aggregate WMA limit of all the states / UTs to ₹61,008 crore. The RBI introduced Separate Trading of Registered Interest and Principal of Securities (STRIPS) in the state government securities. Retail Direct Gilt (RDG) account – An au...
Post a Comment
Read more