Reserve Bank of India revises small finance bank lending rules for loans against securities and credit to capital market intermediaries

The Reserve Bank of India issued revised amendments to its Small Finance Banks – Credit Facilities framework, replacing the February 2026 amendment and recasting the regime for lending against financial assets. The changes introduce a new section on “loans against eligible securities” and add a dedicated chapter for credit facilities to Capital Market Intermediaries (CMIs), with related exposures generally brought within capital market exposure treatment under the small finance bank concentration risk regime. Eligible collateral is defined to include, among others, listed Group-1 equities and preference shares, Government Securities (including Treasury Bills and Sovereign Gold Bonds), listed debt securities rated BBB or higher, units of specified mutual funds, units of Exchange Traded Funds (excluding commodity ETFs) and units of REITs and InvITs. Banks must set a board-approved policy covering security selection, borrower and group limits, single-security concentration limits, LTVs, margins and haircuts, and ongoing valuation and margin calls. The rules prohibit, among other items, loans against a bank’s own securities (subject to limited carve-outs for loans to individuals against the bank’s own infrastructure long-term bonds and certain financing against the bank’s own certificates of deposit held by mutual funds), partly paid shares, lock-in securities, Indian Depository Receipts, and Commercial Paper and Non-Convertible Debentures with original or initial maturity up to one year. For individuals, LTV ceilings include 60% for listed shares and listed convertible debt, 75% for non-debt mutual funds, ETFs and REITs/InvITs, and up to 85% for debt mutual funds and AAA-rated listed debt (75% for AA to BBB), with breaches to be rectified within seven working days and specified valuation norms applied. The framework also caps system-wide lending to an individual at INR 1 crore for specified securities, permits up to INR 25 lakh per individual for secondary market acquisition of securities, and allows IPO/FPO/ESOP subscription financing up to INR 25 lakh with a maximum 75% loan-to-subscription and a 25% cash margin, alongside restrictions for a bank’s own employees and employee trusts. For CMIs, lending and guarantees are permitted only to entities registered and regulated by a financial sector regulator and compliant with that regulator’s prudential norms, and banks must set counterparty and aggregate limits within applicable exposure norms. Permitted facilities cover need-based working capital and specified capital-markets uses such as margin trading financing, settlement-timing mismatch lines and market making, while credit for proprietary acquisition of securities is prohibited subject to narrowly defined, fully secured exceptions. Guarantees for exchange or clearing-related deposits and margins require minimum collateral of 50%, including 25% cash, and most CMI facilities must be fully secured with ongoing collateral maintenance and margin-call provisions, including a minimum 40% haircut for equity shares and specific conditions for intraday limits and margin trading facility financing. The revised amendments take effect from July 1, 2026, or earlier if adopted in full by a bank, with outstanding loans and guarantees allowed to run to maturity but new or renewed facilities required to comply from the adoption or effective date; the Reserve Bank of India also noted that related revised amendments to capital adequacy, concentration risk management and financial statements directions have been issued separately.