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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)
  • Regional Rural Banks (RRBs)
  • Primary (Urban) Co-operative Banks (UCBs)
  • Rural Co-operative Banks –
    • State Co-operative Banks (StCBs)
    • Central Co-operative Banks (CCBs)
  • 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)
  • Non-Banking Financial Companies (NBFCs) for all layers –
    • Deposit taking NBFC (NBFC-D)
    • NBFC-Investment and Credit Companies (NBFC-ICC)
    • NBFC-Factor 
    • NBFC-Micro Finance Institutions (NBFC-MFI) 
    • NBFC-Infrastructure Finance Company (NBFC-IFC) 
    • Infrastructure Debt Fund-NBFC (IDF-NBFC) 
    • Housing Finance Company (HFC) 

To whom are the directions partially applicable?

The prudential regulations are not applicable to ‘NBFCs-Base Layer (NBFC-BL) having customer interface but not availing public funds’, however, conduct-related regulations are applicable to such NBFCs.

To whom are the directions not applicable?

The directions are not applicable to –

  • Mortgage Guarantee Company (MGC)
  • NBFC-Account Aggregator (NBFC-AA)
  • Standalone Primary Dealer (SPD) 
  • Non-Operative Financial Holding Company (NOFHC) 
  • NBFC not availing public funds and not having any customer interface

What are the directions on advances to individuals?

Commercial Banks and SFBs

  • Eligible Securities shall include the following securities –
    • Listed Group-1 equity shares and preference shares [Group 1 securities as defined under instructions issued by Securities and Exchange Board of India (SEBI)]
    • Government Securities, including Treasury Bills and Sovereign Gold Bonds (SGBs)
    • Listed Debt Securities, including Convertible Debt Securities, rated BBB or higher
    • Units of Mutual Fund schemes which are listed or where repurchase / redemption facility is available for such units through the Asset Management Company, with underlying investments in equity, equity related instruments or debt instruments
    • Units of Exchange Traded Funds (ETFs) (excluding gold, silver and any other commodity ETFs)
    • Units of Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs).
  • Loan to Value (LTV) shall mean the ratio of the outstanding loan amount to the value of the securities on any given day.
  • LTV ratio for loans against eligible securities to individuals shall be as below –

Eligible Securities LTV Ceiling
Government Securities (including T-Bills) As per bank’s policy
SGBs As applicable in case of loans against Gold and Silver Collateral
Listed shares and listed convertible debt securities 60%
Mutual funds (excluding Debt mutual funds), Units of ETF and Units of REITs / InvITs 75%
Debt mutual funds 85%
Listed Debt Securities with rating –

 
AAA 85%
AA to BBB 75%
  • Any breach in LTV shall be rectified within 7 working days from the day of occurrence of such a breach.
  • For loans to individuals against collateral of Government securities (including T-Bills), listed debt securities and units of debt mutual fund schemes, if the credit rating of the security is downgraded below BBB- during the tenor of the loan, banks shall ensure that those securities are replaced with any other eligible security within 30 working days or proportionate portion of the exposure is repaid.
  • The amount of loan from the banking system that can be granted to individuals against eligible securities, other than Government securities (including T-Bills), listed debt securities and units of debt mutual fund schemes, shall be capped at ₹1 crore per individual.
  • Within the limits applicable to the eligible securities, loan up to ₹25 lakh per individual may be granted for acquisition of securities in secondary markets.

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.

Rural Co-operative Banks

  • The maximum advance by a bank to an individual borrower against the security of shares / debentures should not exceed ₹5 lakh. 
  • The banks shall maintain minimum margin of 50% on loans against equity shares. However, for loans against preference shares and debentures / bonds of corporate bodies, banks can decide the margins.

What are the directions on advances to Capital Market Intermediaries (CMIs)?

Commercial Banks and SFBs

  • Capital Market Intermediaries (CMIs) shall mean regulated entities undertaking trade execution and market infrastructure services in capital markets, including broking, clearing, custody, market making or other incidental services. CMIs shall not include Standalone Primary Dealers and Qualified Central Counterparty (QCCPs).
  • A bank may provide need-based credit facilities to CMIs to fund their day-to-day operations, including general working capital facilities and specific facilities such as financing for margin trading undertaken by stockbrokers; overdraft / credit line facility to stockbrokers / commodity brokers / clearing members to meet settlement related timing mismatches; and market making (for equity as well as debt securities, including State and Central Government securities). 
  • A bank may issue guarantees on behalf of brokers or professional clearing members and in favour of exchanges or clearing houses. Such guarantees shall be secured by a minimum collateral of 50%, out of which 25% shall be in cash.
  • Banks shall not provide credit facilities to a CMI for acquisition of securities on its own account, including for proprietary trading or investments. However, a bank may –
    • Extend finance to approved market makers in equity and debt securities on a fully secured basis.
    • Provide working capital finance to a CMI for warehousing of debt securities, including Government Securities, up to 45 days for fulfilling firm demand / request from its clients on fully secured basis.
    • Extend other working capital facilities against a 100% collateral of cash, cash equivalents and Government Securities (including T-Bills).
  • Cash and cash equivalents shall include cash, balances held in demand and term deposits placed with the lending bank and investments in units of overnight mutual funds (with a minimum haircut of 10%).
  • A bank may extend guarantees for proprietary trading by CMIs subject to the facility being fully secured by collateral of cash, cash equivalents and Government Securities (including T-Bills), out of which a minimum 50% shall be cash or fixed deposits maintained with the lending bank. 
  • All credit facilities to CMIs, including intraday facilities shall be provided on a fully secured basis (i.e. 100% collateral).
  • However, in case of intra-day limits extended to CMIs, a relaxed minimum collateral requirement of 50% shall apply in case the intra-day limit is utilised for meeting shortfall arising on account of settlement timing difference in centrally cleared trades placed on behalf of clients, provided the CMI has expected receivables from a QCCP fully covering such intra-day drawdowns.
  • In respect of financing to brokers for margin trading facility (MTF) provided by them to their clients, the facility shall be fully secured by collateral of cash, cash equivalents and Government Securities (including T-Bills) out of which a minimum 50% shall be cash.
  • A bank shall apply suitable haircuts to various types of primary securities and collateral securities, including eligible securities, subject to a minimum haircut of 40% in case of equity shares.
  • Primary Security shall mean security created on assets which have been financed out of the credit facility extended to the borrower.

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 financing of Initial Public Offers (IPOs)?

Commercial Banks and SFBs

  • Banks may grant loans to individuals for subscribing to shares under initial public offer (IPO), follow-on public offer (FPO), or under employee stock option plan (ESOP) up to ₹25 lakh per individual at the banking system level.
  • However, the loan amount shall not exceed 75% of the subscription value, i.e., borrowers shall contribute a minimum cash margin of 25%.
  • No loan, whether secured or unsecured, shall be granted by a bank to its own employees or Employees’ Trust set up by the bank for purchasing its own Securities under IPOs / FPOs / ESOPs or from the secondary market.
  • It shall be ensured that a lien is created on the shares to be allotted under the IPOs / FPOs / ESOPs, and such shares shall be pledged to the lender upon allotment. 

NBFCs

  • There shall be a ceiling of ₹1 crore per borrower for financing subscription to IPO.

What are other directions?

Commercial Banks and SFBs

  • A bank shall not grant the following loans –
    • Loans against its own securities
    • Loans against partly paid shares
    • Loans against securities which are under any lock-in requirements
    • Loans against collateral of Indian Depository Receipts (IDRs)
    • Loans against securities of such entities to which banks are not allowed to grant loans and advances
    • Loans to companies for buy-back of shares / securities 
    • Loans against Commercial Papers and Non-Convertible Debentures of original or initial maturity up to 1 year
  • A bank may extend loans to individuals against Long-Term Bonds issued by it for infrastructure financing. 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 sanction advances against Fixed Deposit Receipts (FDRs) or other term deposits of other banks.
  • A bank may lend against Certificates of Deposit (CDs) and buy back their own CDs where such CDs are held by mutual funds.
  • The bank shall not sanction loans for acquisition of / investing in small savings instruments including Kisan Vikas Patras (KVPs).

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.
  • 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.
  • A UCB shall not sanction credit facility against fixed deposit / term deposit receipts of other banks.
  • UCBs shall not sanction loans for acquisition of / investing in small savings instruments including KVPs.

RRBs and Rural Co-operative Banks

  • The bank may grant advances against the security of National Savings Certificates (NSCs) by keeping a margin of 25% on the value of original investment in NSCs without taking into account accrued interest, if any.
  • The banks shall not sanction loans for acquisition of / investing in small savings instruments including KVPs.

AIFIs

  • AIFIs shall not be permitted to provide loans against the term deposits accepted.
  • No loans shall be sanctioned by AIFIs against their CDs.

NBFCs

  • The NBFC with asset size of ₹100 crore and above shall comply with the following conditions while lending against the collateral of listed shares –
    • Maintain an LTV ratio of 50% for loans against collateral of shares. 
    • Any shortfall in the maintenance of the 50% LTV occurring on account of movement in the share prices shall be made good within 7 working days.
    • In case where lending is being done for investment in capital markets, accept only Group 1 securities (as defined under instructions issued by SEBI) as collateral for loans of value more than ₹5 lakh.
  • The NBFC shall not lend against its own shares.


References

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 – 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 (Non-Banking Financial Companies – Credit Facilities) Directions, 2025 (Updated as on April 1, 2026)'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12957&Mode=0

Reserve Bank of India. (2025, November 28). 'Reserve Bank of India (Regional Rural Banks – Credit Facilities) Directions, 2025 (Updated as on April 01, 2026)'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=13053&Mode=0

Reserve Bank of India. (2025, November 28). 'Reserve Bank of India (Rural Co-operative Banks – Credit Facilities) Directions, 2025 (Updated as on April 01, 2026)'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=13002&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

Reserve Bank of India. (2026, March 30). 'Reserve Bank of India (Commercial Banks – Credit Facilities) Amendment Directions, 2026 (Revised)'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=13346&Mode=0

Reserve Bank of India. (2026, March 30). 'Reserve Bank of India (Small Finance Banks – Credit Facilities) Amendment Directions, 2026 (Revised)'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=13351&Mode=0

Reserve Bank of India. (2026, April 29). 'Reserve Bank of India (Urban Co-operative Banks – Credit Facilities) – Amendment Directions, 2026'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=13404&Mode=0


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