Reserve Bank of India (Non-Fund Based Credit Facilities) Directions, 2025 – Summary
The Directions consolidate and harmonize guidelines on non-fund based (NFB) facilities such as guarantees, letters of credit, and co-acceptances to streamline credit intermediation and support infrastructure financing. Issued under powers from the Banking Regulation Act, RBI Act, and NHB Act, they apply to commercial banks (including RRBs/LABs), co-operative banks, All-India Financial Institutions, and eligible NBFCs/HFCs for NFB exposures, except derivative exposures (except where specified).
Effective Date: April 1, 2026, or earlier at an RE’s discretion. New or renewed NFB facilities after this date must comply; earlier facilities remain under existing rules.
Key Definitions
- Beneficiary: Party in whose favour the facility is issued.
- Obligor: Entity whose obligations are backed.
- Secured Portion: Covered by realizable tangible security.
General Conditions
REs must frame credit policies detailing types, limits, appraisal, security, monitoring, and controls. Generally, NFB facilities are issued only to customers with funded facilities from the RE, with exceptions (e.g., counter-guarantees, full financial collateral, no-objection certificates). NFB facilities cannot assure redemption/repayment of funds raised via deposits/bonds unless allowed. Once devolved into a funded facility, prudential norms for funded exposures apply.
Guarantees
Guarantees must be irrevocable, unconditional, and incontrovertible, with a clear payment mechanism. Aggregate/individual ceilings are required; for certain co-operative and rural banks, total guaranteed obligations ≤5% of total assets and unsecured ≤1.25%. Policies must address invocation, settlement, tenor, charges, and fraud prevention. Electronic guarantees require SOPs ensuring integration, automation, and audit controls. Guarantees favouring other REs are generally barred, except for trade-related transactions and NFB facilities.
Co-Acceptances
Only genuine trade bills may be co-accepted, ensuring goods receipt and proper record-keeping. Co-acceptance of bills drawn by another RE or where funding already exists is prohibited.
Special Cases
- Overseas Transactions: AD-permitted REs may extend NFB facilities under FEMA guidelines, with monitoring of end-use.
- Stock/Commodity Brokers: Only scheduled commercial banks may issue guarantees to exchanges as per regulations.
Partial Credit Enhancement (PCE)
Select REs may provide PCE to corporate/SPV/municipal bonds to enhance credit ratings and access bond markets.
- Limit: ≤50% of bond size (single RE and aggregate).
- Bonds must be rated at least BBB- before enhancement by two agencies.
- PCE must be irrevocable, documented, and used only for bond servicing.
- Drawn portions become on-balance sheet; capital requirements depend on pre-enhanced rating.
- Special limits apply for NBFC/HFC bonds (≥3-year tenor, used for refinancing).
Other Provisions
The Directions repeal earlier instructions listed in Annex 2 from the effective date. Electronic guarantees require robust policies, segregation of duties, integrated systems, and strong security controls.
