**Executive Summary**
This document presents the Reserve Bank of India's Second Amendment Directions, 2026, concerning credit facilities for Small Finance Banks (SFBs) lending to Infrastructure Investment Trusts (InvITs). These directions, issued under the Banking Regulation Act, 1949, modify the existing Directions of 2025. The changes will come into force from July 1, 2026, or an earlier date when adopted by a bank.
**Key Points / Main Content**
*Lending to InvITs*
* Banks are permitted to lend to InvITs registered with and regulated by SEBI.
* Banks must be mindful of legal provisions regarding enforcement of security, ensuring the trustee's borrowing powers are within the trust deed.
* Banks must strictly monitor the end use of funds lent to InvITs to prevent financing activities not permitted, such as land acquisition.
*General Conditions*
* Banks must have a Board-approved policy on lending to InvITs, covering appraisal, sanctioning, underwriting norms (including DSCR), internal limits, and monitoring mechanisms.
* Banks can only lend to InvITs where none of the underlying SPVs face 'financial difficulty' as defined in the Reserve Bank of India (Small Finance Banks – Resolution of Stressed Assets) Directions, 2025.
* Bank finance to InvITs for acquiring equity of other entities is subject to Paragraph 137 of the Directions.
* Lending to InvITs must be via loans without bullet or ballooning principal repayments.
* Banks may lend only to an InvIT that: is listed; has a minimum of three years of operations with positive 'net distributable cash flows' in the preceding two financial years; and has not been subject to any material adverse regulatory action in the previous three years.
*Prudential Ceiling on Leverage*
* Banks must assess critical parameters, including sufficiency of cash flows at the InvIT level, to ensure timely debt servicing.
* The overall leverage of the borrowing InvIT must be within the prudential ceiling prescribed by SEBI or a lower limit set by the bank's Board.
* The aggregate credit exposure of all banks to the borrowing InvIT and its underlying SPVs/holdcos combined, cannot exceed 49% of the InvIT assets' value, or a lower limit set by the bank's Board based on the InvIT's credit rating.
*Security Coverage*
* Bank finance to InvITs must be fully secured by a charge on identified assets.
* Financing against a specific asset across all banks and AIFIs must be extended either at the InvIT level or at the SPV/holdco level (but not both). Existing loans at the SPV/holding company level for an asset must be fully liquidated if a facility is extended at the InvIT level against that asset.
* Banks must create a charge over receivables from the underlying assets and/or establish an escrow mechanism to prevent diversion of cash flows.
**Impact Analysis**
**Small Finance Banks (SFBs)**
*Impact*
SFBs are directly impacted as the Second Amendment Directions modify the credit facilities they can extend to InvITs. The directions set specific conditions, restrictions, and guidelines for such lending activities, including general lending conditions, leverage, and security coverage requirements.
*Action Required*
SFBs must review and update their internal lending policies and procedures to comply with the new requirements. They need to establish Board-approved policies, monitor InvITs' end use of funds, assess debt servicing capacity, and ensure adequate security coverage. They must also adopt the new directions by July 1, 2026, or an earlier date if possible.
**Infrastructure Investment Trusts (InvITs)**
*Impact*
InvITs are directly impacted, as the Second Amendment Directions regulate the lending terms they can access from SFBs. The changes affect the eligibility criteria for InvITs to receive bank loans, the permissible use of funds, and the security coverage requirements.
*Action Required*
InvITs need to understand the new lending criteria and leverage limits imposed on SFBs. They must ensure they meet the eligibility conditions, comply with restrictions on the use of funds, and be prepared to provide the required security coverage to qualify for bank financing.
**Reserve Bank of India (RBI)**
*Impact*
The RBI is responsible for overseeing and enforcing the new Second Amendment Directions.
*Action Required*
The RBI will need to monitor the compliance of SFBs with the new requirements and take appropriate regulatory actions if necessary.
Key Entities Referenced
SEBI: Securities and Exchange Board of India, the regulator for InvITs.
InvITs: Infrastructure Investment Trusts, the entities to which these directions pertain.
Reserve Bank of India (Small Finance Banks – Credit Facilities) Second Amendment Directions, 2026: The primary subject of the document, providing amendments to existing directions regarding credit facilities for Small Finance Banks related to InvITs.
Reserve Bank of India (Small Finance Banks – Credit Facilities) Directions, 2025: The original directions that are being amended by the document.
Banking Regulation Act, 1949: The act that grants the Reserve Bank of India the power to issue these directions.
भारतीय �रज़वर् बैंक
RESERVE BANK OF INDIA
RBI/2025-26/<>
DOR.CRE.REC. /07.01.002/2025-26 DD-MM-YYYY
Reserve Bank of India (Small Finance Banks – Credit Facilities) Second
Amendment Directions, 2026 – Draft for Comments
Please refer to the Reserve Bank of India (Small Finance Banks – Credit Facilities)
Directions, 2025 (hereinafter referred to as ‘Directions’).
2. On a review, and in exercise of the powers conferred by Sections 21 and 35A of
the Banking Regulation Act, 1949 and all other provisions / laws enabling the
Reserve Bank of India in this regard, the Reserve Bank of India, being satisfied that
it is necessary and expedient in public interest so to do, hereby, issues the Second
Amendment Directions hereinafter specified.
3. The Second Amendment Directions modify the Directions as under:
3(1) In ‘Chapter IX – Infrastructure Financing’ of the Directions, paragraph 137A shall
be substituted with the following paragraph, namely:
“137A. Lending to InvITs
(1) Banks shall be permitted to lend to InvITs which are registered with and
regulated by SEBI.
(2) As InvITs are trusts, the bank shall be mindful of the legal provisions in
respect of these entities especially those regarding enforcement of
security. Specifically, the bank shall establish that the borrowing by the
trustee is well within the powers allowed under the respective trust deed.
(3) A bank shall strictly monitor the end use of funds lent to InvITs to ensure
that this route is not being used to finance activities which are not
permitted, such as land acquisition, even where such acquisition forms
part of a project.Reserve Bank of India (Small Finance Banks – Credit Facilities) Second Amendment Directions, 2026
(4) General Conditions:
(i) A bank shall put in place a Board approved policy on lending to
InvITs, which shall, inter alia, cover appraisal mechanism,
sanctioning conditions, underwriting norms, including metrics such
as the debt service coverage ratio (DSCR) and their corresponding
benchmark levels, internal limits for individual exposures as well as
the aggregate portfolio, and monitoring mechanisms, including
stipulation of appropriate covenants.
(ii) A bank shall lend to only those InvITs where none of the underlying
SPVs is facing ‘financial difficulty’ as defined in the Reserve Bank of
India (Small Finance Banks – Resolution of Stressed Assets)
Directions, 2025.
(iii) Bank finance to InvITs for acquiring equity of other entities shall be
subject to the relevant conditions given in Paragraph 137.
(iv) Lending to an InvIT by a bank shall only be by way of loans not
involving bullet or ballooning principal repayments.
(v) A bank may lend only to an InvIT which satisfies the following
conditions:
a) InvIT is listed;
b) InvIT has completed minimum three years of operations, with
a positive ‘net distributable cash flows’ in the preceding two
financial years.
c) InvIT should not have been subject to any material adverse
regulatory action during the previous three years.
(5) Prudential Ceiling on Leverage:
(i) Without prejudice to generality, a bank shall undertake assessment
of all critical parameters including sufficiency of cash flows at InvIT
level to ensure timely debt servicing.
(ii) Overall leverage of the borrowing InvIT shall be within the prudential
ceiling prescribed by SEBI, or such lower limit as may be decided
by the bank’s Board.Reserve Bank of India (Small Finance Banks – Credit Facilities) Second Amendment Directions, 2026
(iii) The aggregate credit exposure of all banks to the borrowing InvIT
and its underlying SPVs/ holdcos taken together, shall not exceed
49% of the value of the InvIT assets, or such lower limit as may be
decided by a bank’s Board based on the credit rating of the InvIT or
otherwise.
(6) Security Coverage
(i) Bank finance to InvITs shall be fully secured by way of a charge on
identified assets. The financing against a specified asset across all
banks and AIFIs shall be extended either at the InvIT level or at the
SPV/holdco level, but not at both levels. Where a facility is extended
at the InvIT level against a specified asset, any existing loan at the
SPV or holding company level in respect of such asset shall be fully
liquidated.
(ii) The bank shall also create a charge over receivables from the
underlying assets and / or establish an escrow mechanism to
prevent diversion of cash flows.”
4. These Directions shall come into force from July 1, 2026, or an earlier date when
adopted by a bank in entirety.
(Vaibhav Chaturvedi)
Chief General Manager