**Executive Summary**
The document is the Reserve Bank of India's Second Amendment Directions, 2026, regarding credit facilities for Small Finance Banks, specifically concerning lending to Infrastructure Investment Trusts (InvITs). These directions modify the existing 'Directions, 2025' and are issued under the powers conferred by the Banking Regulation Act, 1949. The directions come into force from July 1, 2026, or earlier if adopted in entirety. The document is released as a draft for comments.
**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 InvITs, especially regarding security enforcement, ensuring that trustee borrowing is within permitted powers.
* Banks must strictly monitor the end use of funds lent to InvITs to prevent financing of non-permitted activities like land acquisition.
* **General Conditions:**
* Banks must have a Board-approved policy for lending to InvITs, covering appraisal, sanctioning, underwriting norms (including DSCR), internal limits, and monitoring mechanisms.
* Banks can only lend to InvITs where underlying SPVs are not facing 'financial difficulty' as defined in RBI's 'Resolution of Stressed Assets Directions, 2025'.
* Bank finance for InvITs acquiring equity of other entities is subject to Paragraph 137 of the Directions.
* Lending to InvITs must be through loans without bullet or ballooning principal repayments.
* A bank can lend only to listed InvITs that:
* Have completed at least three years of operations.
* Have positive net distributable cash flows in the preceding two financial years.
* Have not been subject to any material adverse regulatory action in the previous three years.
* **Prudential Ceiling on Leverage:**
* Banks must assess critical parameters, including cash flow sufficiency at the InvIT level to ensure timely debt servicing.
* Overall leverage of borrowing InvITs must be within the SEBI-prescribed limit, or a lower limit as decided by the bank's Board.
* Aggregate credit exposure of all banks to the borrowing InvIT and its SPVs/holdcos cannot exceed 49% of the InvIT asset value, or a lower limit set by the bank's Board.
* **Security Coverage:**
* Bank finance to InvITs must be fully secured by a charge on identified assets.
* Financing against a specified asset should be extended either at the InvIT level or the SPV/holdco level, but not both. Existing loans at the SPV/holding company level for an asset must be liquidated if a facility is extended at the InvIT level against the same asset.
* The bank shall 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**
* **Impact:** These directions will impact the way Small Finance Banks lend to InvITs, imposing specific conditions, restrictions, and monitoring requirements.
* **Action Required:** Banks need to review their current lending practices, formulate Board-approved policies aligned with these directions, and implement necessary monitoring mechanisms.
**Infrastructure Investment Trusts (InvITs)**
* **Impact:** The directions influence the availability and terms of credit from Small Finance Banks.
* **Action Required:** InvITs need to ensure compliance with the conditions specified, including financial health and regulatory standing.
**Reserve Bank of India (RBI)**
* **Impact:** The directions set rules for Small Finance Banks.
* **Action Required:** Monitor compliance of the directions by the banks and revise the document according to the received comments.
Key Entities Referenced
SEBI: The regulator with which InvITs must be registered.
Reserve Bank of India (Small Finance Banks – Credit Facilities) Second Amendment Directions, 2026: The primary subject of the document, outlining amendments to directions regarding credit facilities for Small Finance Banks related to InvITs.
InvITs: Infrastructure Investment Trusts, the entities to which the amended directions apply regarding lending from Small Finance Banks.
Reserve Bank of India: The regulator issuing the directions for Small Finance Banks.
Banking Regulation Act, 1949: The legislation providing the Reserve Bank of India the power to issue the directions.
भारतीय ररज़र्व 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