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Informist, Wednesday, Aug. 6, 2025

--RBI releases directions for non-fund based credit facilities 

--RBI directions on non-fund based credit facilities effective Apr 1, 2026 

MUMBAI - The Reserve Bank of India on Wednesday issued directions to "harmonise and consolidate" non-fund based credit facilities across all entities to broaden the funding sources for infrastructure financing. Non-fund based facilities are services extended by banks in terms of guarantees instead of loans, giving an assurance to the third party or seller. The norms will be effetive from Apr. 1. The RBI had on Apr. 9 issued  draft guidelines on non-fund based credit facilities across all entities.

The regulator has stipulated that a regulated entity's credit policy must include comprehensive provisions for issue of non-fund-based facilities, limits granted, and credit appraisal. The policy should also outline security requirements, fraud prevention measures, and an overall monitoring mechanism that encompasses post-sanction monitoring mechanism including post-sanction monitoring, delegation matrix, audit and internal controls, compliance to uniform standards issued by standard setting bodies and other safeguards, the regulator said.

A regulated entity shall not issue a non-funding based facility to any entity assuring redemption or repayment of funds raised by any entity via deposits, issuance of bonds, or in any other form, unless specifically permitted under any regulatory guidelines issued by the Reserve Bank. Further, it said that a regulated entity shall put in place suitable internal aggregate or individual ceilings for issuance of guarantees in general and unsecured guarantees in particular.

Wherever a reguated entity issues an electronic guarantee, there should be a standard operating procedure aimed at minimisation of manual intervention, meeting system integration requirements, ensuring technological compatibility between the regulated entity's interface and the electronic guarantee platforms, audit and internal controls etc. 

Proper records of the bills co-accepted for each customer shall be maintained, so that the commitments for each customer and the total commitments at a branch can be readily ascertained, and these shall be part of internal audit, according to the directions.

Banks are required to maintain accurate and detailed records of bills for each customer. This ensures that commitments for each customer and the total commitments at a branch can be easily determined. These records are subject to internal audits, as per the RBI's directives.

Authorised dealer banks are permitted to issue guarantees on behalf of a foreign entity or its step-down subsidiary, where an Indian entity has acquired control through the foreign entity. Such guarantees must be backed by a counter-guarantee or collateral provided by the Indian entity or its group company, according to the directions.

Only scheduled commercial banks are authorised to issue guarantees on behalf of stock/commodity brokers in favour of stock/commodity exchanges. These guarantees can be issued in lieu of security deposits, to the extent acceptable by the exchanges in the form of bank guarantees. Scheduled commercial banks may also issue guarantee in lieu of margin requirements, as per exchange regulations and other instructions issued by the Reserve Bank of India from time to time.

The RBI allows regulated entities to extend partial credit enhancement to bonds issued by corporates, special purpose vehicles, and non-deposit taking non-bank lenders with minimum asset size of INR 10 billion. The credit facililty will also be provided to bonds which are issued by municipal corportations. 

When issuing partial credit enhancement facility, regulted entities will be required to include certain provisions such as quantum of the partial credit enhancement, underwriting standards, assessment of risk, pricing, setting limits, etc. The credit enhancement facility will be a subordinated facility and it will be issued in the form of line of credit, which will be drawn if there is a shortfall in cash flows for servicing the bonds and thereby may improve the credit rating.

Under the balance sheet, the credit facility to the extent drawn will be treated as an on-balance sheet item. The undrawn facilities will be an off-balance sheet segment and reported under 'contingent liability – others', the directions said. Further, the regulated entities which will provide the facilty for a specific bond issue will be required to maintain capital based on the credit quantum. There will also be applicable risk weight based on the pre-enhanced rating of the bond to be issued.  End

Reported by Vidhushi RajPurohit and Vaishali Tyagi

Edited by Vandana Hingorani

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