**Executive Summary**
This document outlines the Reserve Bank of India's Second Amendment Directions, 2026, concerning credit facilities for Small Finance Banks (SFBs) regarding lending to Infrastructure Investment Trusts (InvITs). The Directions, drafted for comments, allow banks to lend to SEBI-registered and regulated InvITs, subject to specified conditions. These directions will be effective from July 1, 2026, or an earlier date if adopted by a bank in its entirety.
**Key Points / Main Content**
* **Lending to InvITs:**
* Banks are permitted to lend to InvITs registered with and regulated by SEBI.
* Banks must ensure InvIT borrowing is within the powers allowed under the trust deed and strictly monitor fund usage to prevent financing of unpermitted activities (e.g., land acquisition).
* **General Conditions:**
* Banks must have a Board-approved policy covering appraisal, sanctioning, underwriting, DSCR, exposure limits, and monitoring mechanisms.
* Banks can only lend to InvITs where none of the underlying SPVs face "financial difficulty" as defined in RBI Directions, 2025.
* Bank finance to InvITs for equity acquisition is subject to Paragraph 137 requirements.
* Lending must be via loans, excluding bullet or ballooning principal repayments.
* InvITs must be listed, have 3+ years of operations, positive net distributable cash flows for the last 2 years, and no material adverse regulatory action in the last 3 years.
* **Prudential Leverage Ceiling:**
* Banks must assess critical parameters like InvIT-level cash flow sufficiency for debt servicing.
* Overall InvIT leverage must be within SEBI's prudential ceiling or the bank's Board-determined limit.
* Aggregate bank exposure to InvITs and underlying entities combined can't exceed 49% of InvIT asset value or the bank's Board-determined limit based on the InvIT’s credit rating.
* **Security Coverage:**
* Bank finance to InvITs must be fully secured.
* Financing against a specified asset across all banks/AIFIs must be at either the InvIT or SPV/holdco level, not both. If at the InvIT level, SPV/holding company loans against the same asset must be liquidated.
* Banks must create a charge over underlying asset receivables and/or establish an escrow mechanism.
* **Effective Date:**
* These Directions are effective from July 1, 2026, or earlier if a bank adopts them in entirety.
**Impact Analysis**
**Impact: Small Finance Banks (SFBs)**
* SFBs are now permitted to lend to InvITs, opening up new lending opportunities.
**Action Required**
* SFBs must develop Board-approved lending policies for InvITs, meeting the specified criteria.
* SFBs must assess InvITs according to the document's requirements before lending.
Key Entities Referenced
Reserve Bank of India (Small Finance Banks – Credit Facilities) Second Amendment Directions, 2026: The main policy document which is a draft for comments.
InvITs: Infrastructure Investment Trusts; entities banks are permitted to lend to under specific conditions.
Reserve Bank of India: The regulator issuing the directions.
Banking Regulation Act, 1949: Act that empowers the Reserve Bank of India in issuing these directions.
SEBI: The regulator for InvITs which banks are permitted to lend to.
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