Reserve Bank of India sets new small finance bank rules for loans against securities and credit to capital market intermediaries from 1 April 2026

The Reserve Bank of India issued amendments to its Small Finance Banks credit facilities directions, introducing a new framework for lending against securities and adding a dedicated chapter governing credit facilities to Capital Market Intermediaries (CMIs). The changes update key definitions, set collateral eligibility and loan-to-value parameters, and bring these exposures within the small finance banks’ capital market exposure (CME) treatment except where specifically exempted. Under the new “Loans against Securities” section, banks may extend credit against “eligible securities” such as listed Group-1 equity and preference shares, government securities (including Treasury Bills and Sovereign Gold Bonds), listed debt securities rated BBB or higher, and units of eligible mutual funds, exchange traded funds (excluding commodity ETFs) and REITs/InvITs. Bank policies must cover, at a minimum, collateral selection criteria, borrower and group limits, concentration limits, LTV or margins and haircuts, and ongoing valuation and margin calls, alongside end-use monitoring and other operational safeguards. Lending against a bank’s own securities is generally prohibited, with limited allowances including loans to individuals against the bank’s infrastructure long-term bonds (subject to board-approved safeguards, a per-borrower ceiling of INR 10 lakh and tenor not exceeding the bond maturity) and finance against, and buybacks of, the bank’s own certificates of deposit held by mutual funds subject to SEBI rules; other prohibitions include partly paid or locked-in securities, Indian Depository Receipts and commercial paper or non-convertible debentures with original maturity up to one year. For individuals (including non-commercial Hindu Undivided Families), LTV ceilings include 60% for listed shares and listed convertible debt, 75% for equity 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; loans against eligible securities other than government securities, listed debt and debt mutual funds are capped at INR 1 crore per individual, with up to INR 25 lakh permitted for secondary-market acquisition and for IPO or FPO or ESOP subscription financing (up to 75% of subscription value, with a minimum 25% cash margin and restrictions on financing purchases of the bank’s own securities by its employees or employee trust). Non-financial entities may also be financed against eligible securities for working capital or other productive purposes, subject to the same LTV ceilings and non-speculative end-use expectations, and custodian banks may issue irrevocable payment commitments to clearing corporations under specified settlement protection or pre-funding conditions. For CMIs (excluding standalone primary dealers and qualified central counterparties), credit facilities may be extended only to entities registered and regulated by a financial sector regulator and compliant with that regulator’s prudential norms, with banks required to set counterparty and aggregate exposure limits within overall CME and other exposure constraints. Permissible facilities include working capital and settlement or margin-related lines and market-making finance, while financing a CMI’s proprietary acquisition of securities is barred subject to limited exceptions including market making (with restrictions on accepting the same securities as collateral), short-term warehousing of debt securities up to 45 days for client demand, and tightly collateralised guarantees for proprietary trading. Facilities must generally be fully secured, guarantees in lieu of exchange deposits or margins require at least 50% collateral including 25% cash, certain intraday settlement lines may be backed by at least 50% collateral where receivables are from a qualified central counterparty, and equity collateral is subject to a minimum 40% haircut. The amendments take effect from 1 April 2026 or earlier if adopted by a bank in full, with outstanding loans and guarantees allowed to continue to maturity, and consequential amendments to capital adequacy, concentration risk management and financial statements directions issued separately.