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Credit Facilities – Loans against Financial Assets

Reserve Bank of India (RBI) has issued directions on credit facilities offered by various regulated entities. This article summarises the directions applicable to loans against financial assets.

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)

What are the directions on advances to individuals?

Commercial Banks and SFBs

  • Loan against shares, debentures, and bonds shall be granted to individuals to meet contingencies and personal needs or for subscribing to new or rights issues of shares / debentures / bonds or for purchase in the secondary market.
  • Loans against the security of shares, debentures, and bonds shall not exceed ₹10 lakh per individual if the securities are held in physical form and ₹20 lakh per individual if the securities are held in demat form. 
  • The bank shall maintain a minimum margin of 50% of the market value of equity shares / convertible debentures held in physical form. In the case of shares / convertible debentures held in demat form, a minimum margin of 25% shall be maintained. The margin requirements for advances against preference shares / non-convertible debentures and bonds shall be determined by the bank itself.

UCBs

  • Loans against the primary / collateral security of shares / debentures should be limited to ₹5 lakh if the security is in physical form and up to ₹10 lakh if the security is in demat form.
  • A margin of 50% should be maintained on all such advances.
  • The aggregate of all loans against the security of shares and debentures should be within the overall ceiling of 20% of Tier-I capital of the bank as on 31st March of the previous financial year.

What are the directions on advances to share and stockbrokers / commodity brokers?

Commercial Banks and SFBs

  • The bank and its subsidiaries shall not undertake financing of ‘Badla’ transactions.
  • The bank shall grant advances only to share and stockbrokers registered with SEBI who comply with capital adequacy norms prescribed by SEBI / stock exchanges.
  • Share and stockbrokers / commodity brokers shall be provided need-based overdraft facilities / line of credit against shares and debentures held by them as stock-in-trade. 
  • The ceiling of ₹10 lakh / ₹20 lakh for advances against shares / debentures to individuals will not be applicable.
  • The bank shall grant working capital facilities to stock brokers to meet the cash flow gap between delivery and payment for Delivery versus Payment (DVP) transactions undertaken on behalf of institutional clients viz., Financial Institutions (FIs), Foreign Institutional Investors (FIIs), mutual funds and banks. 
  • The requirement relating to transfer of shares in the bank’s name in respect of shares held in physical form shall not apply in respect of advances granted to share and stockbrokers provided such shares are held as security for a period not exceeding 9 months. In the case of demat shares, the bank shall avail the facility provided in the depository system for pledging and there shall not be a need to transfer the shares in the name of the bank irrespective of the period of holding. The share and stockbrokers are free to substitute the shares pledged by them as and when necessary. In case of a default in the account, the bank shall get the shares transferred in its name.

UCBs

  • UCBs are prohibited from extending any fund based or non-fund-based credit facilities, whether secured or unsecured, to stockbrokers against shares and debentures / bonds, or other securities, such as fixed deposits, LIC policies etc.
  • UCBs are not permitted to extend any facility to commodity brokers including issue of guarantees on their behalf.

What are the directions on finance to Market Makers?

Commercial Banks and SFBs

  • The bank shall provide need-based finance to Market Makers approved by stock exchanges. 
  • Market Making may be for equity and debt securities including State and Central Government securities.
  • A uniform margin of 50% shall be applied on all advances / financing of IPOs / issue of guarantees on behalf of Market Makers. A minimum cash margin of 25% (within the margin of 50%) shall be maintained in respect of guarantees issued by banks for capital market operations.
  • The bank shall accept, as collateral, scrips other than the scrips in which the Market Making operations are undertaken.
  • The ceiling of ₹10 lakh / ₹20 lakh for advances against shares / debentures to individuals will not be applicable.

What are the directions on financing of Initial Public Offers (IPOs)?

Commercial Banks and SFBs

  • Loans / advances to any individual from the banking system against security of shares, convertible bonds, convertible debentures, units of equity oriented mutual funds and Public Sector Undertaking (PSU) bonds shall not exceed ₹10 lakh for subscribing to IPOs. 
  • The corporates shall not be extended credit by banks for investment in other companies’ IPOs. 
  • Banks shall not provide finance to Non-Banking Financial Companies (NBFCs) for further lending to individuals for IPOs. 
  • Follow-on Public Offers (FPOs) shall also be included under IPO.

What are the directions on finance to assist employees to buy shares of their own companies?

Commercial Banks and SFBs

  • The bank shall extend finance to employees for purchasing shares of their own companies under Employees Stock Option Plan (ESOP) / reserved by way of employees’ quota under IPO / FPO to the extent of 90% of the purchase price of the shares or ₹20 lakh, whichever is lower. 
  • The bank shall not extend advances to their employees / Employees’ Trusts set up by them for the purpose of purchasing their own banks’ share under ESOPs / IPOs or from the secondary market. 

What are the directions on advances against units of mutual funds?

Commercial Banks and SFBs

  • The units shall be listed in stock exchanges or repurchase facility for the units of mutual fund shall be available at the time of lending.
  • The units shall have completed the minimum lock-in-period stipulated in the relevant scheme.
  • The amount of advances shall be linked to the Net Asset Value (NAV) / repurchase price or the market value, whichever is lower and not to the face value of the units.
  • Advance against units of mutual funds (except units of exclusively debt-oriented funds) shall attract the quantum and margin requirements as applicable to advance against shares and debentures. The quantum and margin requirement for loans / advances to individuals against units of exclusively debt-oriented mutual funds shall be decided by the bank.
  • Advances shall not be granted for subscribing to or boosting up the sales of another scheme of the mutual funds or for the purchase of shares / debentures / bonds etc.

UCBs

  • Advances against units of mutual funds can be extended only to individuals as in the case of advances against the security of shares, debentures and bonds.

What are the directions on advances for margin trading?

Commercial Banks and SFBs

  • The bank shall extend finance to stockbrokers for margin trading. 
  • The finance extended for margin trading shall be within the overall ceiling of 40% of net worth prescribed for exposure to the capital market.
  • A minimum margin of 50% shall be maintained on the funds lent for margin trading.
  • The shares purchased with margin trading shall be in demat mode under pledge to the lending bank. 

What are other directions?

Commercial Banks and SFBs

  • The banks may extend loans to individuals against Long-Term Bonds issued by them for financing the infrastructure sub-sector. Such loans shall be subject to a ceiling of ₹10 lakh per borrower; and tenure of the loan shall not exceed the maturity period of the underlying bonds. A bank shall not extend loans against such bonds issued by other banks.
  • The bank shall not undertake arbitrage operations itself or extend credit facilities directly or indirectly to stockbrokers for arbitrage operations in stock exchanges.
  • Shares / debentures / bonds shall be valued at prevailing market prices when they are lodged as security for advances.
  • Advances against partly paid shares shall not be granted.
  • Advances to partnership / proprietorship concerns against the primary security of shares and debentures shall not be granted.
  • Whenever the advances granted to a borrower exceeds ₹10 lakh, the said shares / debentures / bonds shall be transferred in the bank's name. Where securities are held in demat form, the requirement relating to transfer of shares in the bank's name shall not apply, however, the bank shall avail the facility provided in the depository system for pledging securities in favour of the bank. In case of default by the borrower, the bank shall get the shares and debentures transferred in its name immediately.
  • The bank shall desist from sanctioning advances against Fixed Deposit Receipts (FDRs) or other term deposits of other banks.
  • The bank shall lend against Certificates of Deposit (CDs) and buy back their own CDs only in respect of CDs held by mutual funds. 
  • The bank shall not grant loans for acquisition of / investing in Small Savings Instruments including Kisan Vikas Patras.
  • The bank shall not grant any loan / advance for subscription to Indian Depository Receipts (IDRs) and against security / collateral of IDRs issued in India.

UCBs

  • UCBs shall not grant any loan or advance to any person for purchasing their own Perpetual Non Cumulative Preference Shares (PNCPS), Tier-II preference shares (such as Perpetual Cumulative Preference Shares, Redeemable Non Cumulative Preference Shares and Redeemable Cumulative Preference Shares), Perpetual Debt instruments (PDI) and Long Term Subordinated bonds (LTSB). 
  • UCBs shall not grant any loan or advance to any person for purchasing PNCPS, Tier-II preference shares, PDI and LTSB of other banks. 
  • UCBs should not invest in PNCPS (Tier-I), other preference shares (Tier-II) and also in Long Term (Subordinated) Deposits (Tier-II), PDI, LTSB issued by other banks; nor should they grant advances against the security of the above instruments issued by them or other banks.
  • The banks should desist from sanctioning advances against FDRs / term deposits of other banks.

What are the directions on advances by Salary Earners’ Primary (Urban) Co-operative Banks (SEBs) against term deposits of non-members?

SEBs are permitted to grant advances against term deposits of non-members, subject to the following conditions –

  • The SEB should be fulfilling all the criteria for financially sound and well managed (FSWM) UCBs.
  • The SEB should have in place an Audit Committee of the Board of Directors.
  • The bye-laws of the SEB should have a provision for giving loans to non-members against term deposits held in their own name singly or jointly with other non-members / members.
  • The SEB should maintain a reasonable margin against such advances at all times.
  • No credit facilities, other than advances against term deposits, shall be granted to non-members.


References

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 – 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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