especially against natural disasters. The bank may consider incorporating this
aspect in their loan policy. The bank may also adopt the guidelines issued by the
National Disaster Management Authority (NDMA) and suitably incorporate them
into their loan policy, procedures and documentation.
123. For pricing of housing finance, the bank shall be guided by the provisions
contained in the Reserve Bank of India (Commercial Banks – Interest Rates on
Advances) Directions, 2025.
124. For Fair Lending Practices and the reset of floating interest rate on Equated
Monthly Instalments (EMI) based personal loans, the bank shall be guided by the
provisions of the Reserve Bank of India (Commercial Banks – Responsible
Business Conduct) Directions, 2025
C. Loans and advances to Commercial Real Estate (CRE)
125. Definition of Commercial Real Estate (CRE) Exposure
(1) Real Estate is generally defined as an immovable asset - land (earth space)
and the permanently attached improvements to it. Income-producing real
estate (IPRE) has been defined in paragraph 226 of the Basel-II Framework,
which is reproduced below:
"Income-producing real estate (IPRE) refers to a method of providing funding
to real estate (such as, office buildings to let, retail space, multifamily
residential buildings, industrial or warehouse space, and hotels) where the
prospects for repayment and recovery on the exposure depend primarily on
the cash flows generated by the asset. The primary source of these cash flows
would generally be lease or rental payments or the sale of the asset. The
borrower may be, but is not required to be, an SPE (Special Purpose Entity),
an operating company focused on real estate construction or holdings, or an
operating company with sources of revenue other than real estate. The
distinguishing characteristic of IPRE versus other corporate exposures that are
collateralised by real estate is the strong positive correlation between the
prospects for repayment of the exposure and the prospects for recovery in the
event of default, with both depending primarily on the cash flows generated by
a property".


(2) An exposure shall be classified as Income-producing real estate (IPRE) /
Commercial Real Estate (CRE), if it results in the creation / acquisition of real
estate (such as, office buildings to let, retail space, multifamily residential
buildings, industrial or warehouse space, and hotels) where the prospects for
repayment depend primarily on the cash flows generated by the asset itself.
Additionally, the prospect of recovery in the event of default would also depend
primarily on the cash flows generated from such funded asset which is taken
as security, as would generally be the case. The primary source of cash flow
(i.e., more than 50 per cent of cash flows) for repayment would generally be
lease or rental payments or the sale of the assets as also for recovery in the
event of default where such asset is taken as security.

(3) These guidelines shall also apply in cases where the exposure may not be
directly linked to the creation or acquisition of CRE, but where the repayment
is primarily dependent on cash flows generated by CRE. Examples include:
(i) Exposures taken against existing CRE assets, whose repayments primarily
depend on rental / sale proceeds.
(ii) Guarantees extended on behalf of companies engaged in CRE activities.
(iii) Exposures on account of derivative transactions with real estate
companies.
(iv) Corporate loans to real estate companies.
(v) Investments in equity or debt instruments of real estate companies.
(4) As follows from sub-paragraphs (2) and (3) above, if the repayment primarily
depends on other factors such as operating profit from business operations,
quality of goods and services, tourist arrivals etc., the exposure shall not be
counted as CRE.
126. The CRE exposures collateralized by eligible credit risk mitigants shall be
reduced to the extent of risk mitigating effects of the collateral as per the provisions
of Reserve Bank of India (Commercial Banks – Prudential Norms on Capital
Adequacy) Directions, 2025. CRE exposures to the extent secured by Commercial
Real Estate would attract a risk weight of 100%. In cases where a part of the CRE
exposure is not covered by the security of commercial real estate, that part would


attract a risk weight for CRE exposure or as warranted by the external rating of the
borrower, whichever is higher.
D. Simultaneous classification of CRE into other regulatory categories
127. It is possible for an exposure to get classified simultaneously into more than
one category, as different classifications are driven by different considerations. In
such cases, the exposure would be reckoned for regulatory/ prudential exposure
limit, if any, fixed by RBI or by the bank itself, for all the categories to which the
exposure is assigned. For the purpose of capital adequacy, the largest of the risk
weights applicable among all the categories would be applicable for the exposure.
The rationale for such an approach is that, while at times certain
classifications/categorizations could be driven by socio-economic considerations
and may be aimed at encouraging flow of credit towards certain activities, these
exposures should be subjected to appropriate risk management/prudential/capital
adequacy norms so as to address the risk inherent in them. Similarly, if an
exposure has sensitivity to more than one risk factor it should be subjected to the
risk management framework applicable to all the relevant risk factors.
128. Similarly, if an exposure is sensitive to multiple risk factors it shall be subjected
to the risk management framework applicable to all the relevant risk factors. For
example:
(1) Lending to Special Economic Zones (SEZs) qualifies as ‘Infrastructure
Lending’. However, if the SEZ exposure also meets the definition of CRE, it
shall be classified under both categories. In such cases:
(i) The risk weight applicable to CRE (100 per cent) shall be applied, regardless
of borrower rating.
(ii) At the same time, the exposure shall remain eligible for all regulatory
concessions extended to "Infrastructure Lending."
(2) Investments in the equity of real estate companies, or Mutual Funds / Alternate
Investment Funds (AIFs) investing in the equity of real estate companies,
would be sensitive to movement in real estate prices, in addition to having a
correlation with the general equity market. Accordingly, such exposures shall
be classified both as Capital Market Exposure (for compliance with regulatory
ceilings) and Real Estate Exposure (compliance with bank’s internal ceiling).


These shall attract applicable risk weights for equity exposures or RW for
exposures to AIFs, whichever is higher, if such risk weights are higher than the
prescribed risk weight for CRE in terms of Reserve Bank of India (Commercial
Banks – Prudential Norms on Capital Adequacy) Directions, 2025. The
exposure shall also be reported to the Reserve Bank under both the
classifications with an appropriate footnote to avoid double counting.
129. The bank shall apply the above principles to any other exposures involving
potential dual classification, involving CRE exposures.
130.  To enable the bank to classify exposures as CRE or otherwise, illustrative
examples are provided below. The bank shall apply the principles and examples
to assess other cases and record a reasoned note justifying its classification. If in
doubt, the bank may refer the matter to the Department of Regulation with full
details.
Illustrative Examples
(1) Exposures which shall be classified as CRE.
(i) Loans extended to builders towards construction of any property
which is intended to be sold or given on lease (e.g. loans extended to
builders for housing buildings, hotels, restaurants, gymnasiums,
hospitals, condominiums, shopping malls, office blocks, theatres,
amusement
parks,
cold
storages,
warehouses,
educational
institutions, industrial parks)
In such cases, the source of repayment in normal course shall be the cash
flows generated by the sale / lease rentals of the property. In case of default
of the loan, the recovery shall also be made from sale of the property if the
exposure is secured by these assets as would generally be the case.
(ii) Loans for multiple houses intended to be rented out
The housing loans extended in cases where houses are rented out need
to be treated differently. As per Basel 2 Framework, loans secured by a
single or small number of condominium or co-operative residential housing
units in a single building or complex also fall within the scope of the
residential mortgage category and national supervisors may set limits on
the maximum number of housing units per exposure. Therefore, such loans


need not necessarily be classified as CRE Exposures. However, if the total
number of such units is more than two, the exposure for the third unit
onwards may be treated as CRE Exposure as the borrower may be renting
these housing units and the rental income would be the primary source of
repayment.
(iii) Loans for integrated township projects
Where the CRE is part of a big project which has small non-CRE
component, it shall be classified as CRE exposure since the primary source
of repayment for such exposures shall be the sale proceeds of buildings
meant for sale.
(iv) Exposures towards development of SEZ
Bank finance for acquisition of land to private developers for setting up of
SEZ is not permissible as per paragraph 98 of these Directions. The bank
shall finance cost of land development, which shall be classified as CRE
for the reason that the source of repayment would be the lease rentals of
the developed plots / sheds.
The following, may however, be noted:
(a) In cases where there are arrangements to insulate the lease rentals
from volatility in the Real Estate prices by way of lease agreements for
periods not shorter than that of the loan and there is no clause which
allows downward adjustment in the lease rentals, such cases shall not
be treated as CRE from the time such conditions get fulfilled.
(b) Banks shall keep in mind the substance of the transaction rather
than the form. For example, it is possible that a SEZ may be
developed by a single company entirely or mainly for its own use.
In such cases the repayment shall depend on the cash flows
generated by the economic activities of the units in the SEZ and
the general cash flow of the company rather than the level of real
estate prices. It shall not then be classified as CRE.
(c) There can be co-developers in an SEZ who undertake a specific
job such as provision of sewerage, electrical lines etc. If their
repayment are not dependent on the cash flows generated by the
CRE asset, such exposures shall not be classified as CRE. This


illustratively would be the case where the co-developer is paid by
the main developer based on progress in work.
(v) Exposures to real estate companies
In some cases exposure to real estate companies is not directly linked to
the creation or acquisition of CRE, but the repayment would come from the
cash flows generated by CRE. Such exposures illustratively could be:
(a) Corporate loans extended to these companies
(b) Investments made in the equity / units / debt instruments of these
companies
(c) Extension of guarantees on behalf of these companies
(d) Derivatives transactions entered into with these companies.
(vi) Exposures to MFs / AIFs investing primarily in the real estate
companies
Exposure to MFs / AIFs investing primarily in the real estate companies
shall be classified as CRE exposure though the exposure would not be
directly linked to the creation or acquisition of CRE, because the repayment
would come from the cash flows generated by CRE.
(vii) General purpose loans where repayment is dependent on real estate
prices
Exposures intended to be repaid out of rentals / sale proceeds generated
by the existing CRE owned by the borrower, where the finance may have
been extended for a general purpose.
(2) Exposures which shall not be classified as CRE
(i) Exposures to entrepreneurs for acquiring real estate for the purpose
of their carrying on business activities, which shall be serviced out of
the cash flows generated by those business activities. The exposure
could be secured by the real estate where the activity is carried out,
as would generally be the case, or could even be unsecured.
(a) Loans extended for construction of a cinema theatre, establishment of
an amusement park, hotels and hospitals, cold storages, warehouses,
educational institutions, running haircutting saloons and beauty
parlours, restaurant, gymnasium etc. to those entrepreneurs who


themselves run these ventures shall fall in this category. Such loans
would generally be secured by these properties.
For instance, in the case of hotels and hospitals, the source of
repayment in normal course would be the cash flows generated by the
services rendered by the hotel and hospital. In the case of a hotel, the
cash flows would be mainly sensitive to the factors influencing the flow
of tourism, not directly to the fluctuations in the real estate prices. In the
case of a hospital, the cash flows in normal course would be sensitive
to the quality of doctors and other diagnostic services provided by the
hospital. In these cases, the source of repayment might also depend to
some extent upon the real estate prices to the extent the fluctuation in
prices influence the room rents, but it shall be a minor factor in
determining the overall cash flows. In these cases, however, the
recovery in case of default, if the exposure is secured by the CRE, shall
depend upon the sale price of the hotel / hospital as well as upon the
maintenance and quality of equipment and furnishings.
The above principle shall also be applicable in the cases where the
developers / owners of the real estate assets (hotels, hospitals,
warehouses, etc.) lease out the assets on revenue sharing or profit-
sharing arrangement and the repayment of exposure depends upon
the cash flows generated by the services rendered, instead of fixed
lease rentals.
(b) Loans extended to entrepreneurs, for setting up industrial units shall
also fall in this category. In such cases, the repayment would be made
from the cash flows generated by the industrial unit from sale of the
material produced which would mainly depend upon demand and
supply factors. The recovery in case of default may partly depend upon
the sale of land and building if secured by these assets. Thus, it shall
be seen that in these cases the real estate prices do not affect
repayment though recovery of the loan could partly be from sale of real
estate.
(ii) Loans extended to a company for a specific purpose, not linked to a
real estate activity, which is engaged in mixed activities including real
estate activity.


A company has two divisions. One division is engaged in real estate
activity, and other division is engaged in power production. An
infrastructure loan, for setting up of a power plant extended to such a
company, to be repaid by the sale of electricity shall not be classified as
CRE. The exposure may or may not be secured by plant and machinery.
(iii) Loans extended against the security of future rent receivables
A few banks have formulated schemes where the owners of existing real
estate such as shopping malls, office premises, etc. have been offered
finance to be repaid out of the rentals generated by these properties. Even
though such exposures do not result in funding / acquisition of CRE, the
repayment might be sensitive to fall in real estate rentals and as such
generally such exposures shall be classified as CRE. However, if there are
certain in-built safety conditions which have the effect of delinking the
repayments from real estate price volatility like, the lease rental agreement
between the lessor and lessee has a lock in period which is not shorter
than the tenor of loan and there is no clause which allows a downward
revision in the rentals during the period covered by the loan, the bank shall
classify such exposures as non CRE. The bank shall, however, record a
reasoned note in all such cases.
(iv) Credit facilities provided to construction companies which work as
contractors
The working capital facilities extended to construction companies working
as contractors, rather than builders, shall not be treated as CRE exposures
because the repayment would depend upon the contractual payments
received in accordance with the progress in completion of work.
(v) Financing of acquisition / renovation of self-owned office / company
premises
Such exposures shall not be treated as CRE exposure because the
repayment will come from company revenues.
(vi) Exposures towards acquisition of units / to industrial units in SEZs
(a) Exposures towards acquisition of units in SEZ shall not be treated as
CRE Exposures where there are restrictions on transfer of such units
and require Government permission,  and speculative activity in sale
and re-sale of units is unlikely to be there.


(b) The exposures to industrial units towards setting up of units or projects
and working capital requirement, etc. shall not be treated as CRE
Exposures.
(vii) Advances to Housing Finance Companies (HFCs)
Banks’ advances to those HFCs, which are mostly lending to individuals
for residential housing as per the norms fixed by National Housing Bank
(NHB) and also fulfil the eligibility criteria to draw refinance from NHB, shall
not be treated as CRE Exposure.
E. Loans and Advances to Commercial Real Estate - Residential Housing
131. Commercial Real Estate – Residential Housing (CRE-RH), has been carved
out as a separate sub-sector from the broader CRE sector, in view of the lower
risk and volatility associated with residential housing projects, as compared to CRE
Sector taken as a whole. CRE-RH includes loans to builders / developers for
residential housing projects (except for captive consumption) under CRE segment.
Such projects shall generally not include non-residential commercial real estate.
However, integrated housing projects comprising of some commercial space (e.g.
shopping complex, school, etc.) may qualify as CRE-RH, provided that the
commercial area in the residential housing project does not exceed 10% of the
total Floor Space Index (FSI) of the project. In case the FSI of the commercial area
in the predominantly residential housing complex exceeds the ceiling of 10%, the
project loans shall be classified as CRE and not CRE-RH.
132. The CRE-RH segment shall attract a lower risk weight of 75% and lower
standard asset provisioning of 0.75% as against 100% and 1.00%, respectively for
the CRE segment or as updated from time to time in terms of the provisions
contained in Reserve Bank of India (Commercial Banks – Prudential Norms on
Capital Adequacy) Directions, 2025 and Reserve Bank of India (Commercial
Banks – Income Recognition, Asset Classification and Provisioning) Directions,
2025 respectively.
133. The bank’s exposures to third dwelling unit onwards to an individual will also be
treated as CRE exposures, as indicated in paragraph 130(1)(ii) of these Directions.


Chapter IX - Infrastructure Financing
A. Criteria for Financing
134. The bank shall finance technically feasible, financially viable and bankable
infrastructure projects undertaken by both public sector and private sector
undertakings subject to the following conditions:
(1) The bank shall have the requisite expertise for appraising technical feasibility,
financial viability and bankability of projects, with particular reference to the risk
analysis and sensitivity analysis.
(2) In respect of projects undertaken by public sector units, term loans shall be
sanctioned only for corporate entities (i.e. public sector undertakings registered
under Companies Act or a Corporation established under the relevant statute).
Further, such term loans shall not be in lieu of or to substitute budgetary
resources envisaged for the project. The term loan could supplement the
budgetary resources if such supplementing was contemplated in the project
design.
(3) While such public sector units may include Special Purpose Vehicles (SPVs)
registered under the Companies Act set up for financing infrastructure projects,
it shall be ensured by the bank that these loans / investments are not used for
financing the budget of the State Governments.
(4) Whether such financing is done by way of extending loans or investing in
bonds, the bank shall undertake due diligence on the viability and bankability
of such projects to ensure that revenue stream from the project is sufficient to
take care of the debt servicing obligations and that the repayment / servicing
of debt is not out of budgetary resources.
(5) In the case of financing SPVs, banks and financial institutions shall ensure that
the funding proposals are for specific monitorable projects.
(6) The bank may also lend to SPVs in the private sector, registered under the
Companies Act for directly undertaking infrastructure projects which are
financially viable and not for acting as mere financial intermediaries. The bank
shall ensure that the bankruptcy or financial difficulties of the parent / sponsor
shall not affect the financial health of the SPV.


B. Types of Financing by Banks
135. In order to meet financial requirements of infrastructure projects, the bank shall
extend credit facility by way of working capital finance, term loan, project loan,
subscription to bonds and debentures / preference shares / equity shares acquired
as a part of the project finance package which is treated as "deemed advance”
and any other form of funded or non-funded facility.
136. Take-out Financing
The bank shall be guided by the Reserve Bank of India (Commercial Banks – Transfer
and Distribution of Credit Risk) Directions, 2025 for instruction related to take- out
financing.
137.
21[*****]
137A. Lending to InvITs
The bank shall lend to InvITs subject to the following conditions:
(1) A bank shall put in place a Board approved policy on exposures to InvITs which
shall inter alia cover the appraisal mechanism, sanctioning conditions, internal
limits, monitoring mechanism, etc.
(2) 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. The overall leverage of the InvITs and the underlying SPVs put
together shall be within the permissible leverage as per the Board approved
policy of the bank.  A bank shall also monitor performance of the underlying
SPVs on an ongoing basis as ability of the InvITs to meet their debt obligation
will largely depend on the performance of these SPVs. As InvITs are trusts, a
bank shall keep in mind the legal provisions in respect of these entities
especially those regarding enforcement of security.
(3) A bank shall lend to only those InvITs where none of the underlying SPVs,
which have existing bank loans, is facing ‘financial difficulty’ as defined in the

21 Deleted with effect from July 01, 2026 vide Reserve Bank of India (Commercial Banks – Credit Facilities)
Amendment Directions, 2026 (Revised) dated March 30, 2026


Reserve Bank of India (Commercial Banks – Resolution of Stressed Assets)
Directions, 2025.
(4) 22[Bank finance to InvITs for acquiring equity of other entities shall be subject
to the relevant conditions given in Chapter XI – Acquisition Finance].
(5) The Audit Committee of the Board of the bank shall review the compliance to
the above conditions on a half yearly basis.
C. Appraisal
138. In respect of financing of infrastructure projects undertaken by Government
owned entities, the bank shall undertake due diligence on the viability of the
projects. The bank shall ensure that the individual components of financing and
returns on the project are well defined and assessed. State Government
guarantees shall not be taken as a substitute for satisfactory credit appraisal and
such appraisal requirements shall not be diluted on the basis of any reported
arrangement with the Reserve Bank or any bank for regular standing instructions
/ periodic payment instructions for servicing the loans / bonds.
139. Infrastructure projects are often financed through Special Purpose Vehicles.
Financing of these projects shall, therefore, call for distinct appraisal methodology
on the part of lending agencies. Identification of various project risks, evaluation of
risk mitigation through appraisal of project contracts and evaluation of
creditworthiness of the contracting entities and their abilities to fulfil contractual
obligations shall be an integral part of the appraisal exercise. In this connection,
the bank shall consider constituting appropriate screening committees / special
cells for appraisal of credit proposals and monitoring the progress / performance
of the projects. Often, the size of the funding requirement would necessitate joint
financing by banks or financial institutions or financing by more than one bank
under consortium or syndication arrangements. In such cases, the participating
bank shall, for the purpose of their own assessment, refer to the appraisal report
prepared by the lead bank or financial institutions or have the project appraised
jointly.

22  Modified with effect from July 01, 2026 vide Reserve Bank of India (Commercial Banks – Credit Facilities)
Amendment Directions, 2026 (Revised) dated March 30, 2026


D. Prudential requirements
140. For prudential credit exposure limits, the bank shall be guided by Reserve Bank
of India (Commercial Banks – Concentration Risk Management) Directions, 2025

.
141. For assignment of risk weight for capital adequacy purposes, the bank shall be
guided by the Reserve Bank of India (Commercial Banks – Prudential Norms on
Capital Adequacy) Directions, 2025.
142. Asset-Liability Management
The long-term financing of infrastructure projects may lead to asset – liability
mismatches, particularly when such financing is not in conformity with the maturity
profile of a bank’s liabilities. The bank shall, therefore, exercise due caution on their
asset-liability position to ensure that they do not run into liquidity mismatches on
account of lending to such projects.
143. Administrative arrangements
Timely and adequate availability of credit is the pre-requisite for successful
implementation of infrastructure projects. The bank shall, therefore, clearly delineate
the procedure for approval of loan proposals and institute a suitable monitoring
mechanism for reviewing applications pending beyond the specified period.
Multiplicity of appraisals by every institution involved in financing, leading to delays,
has to be avoided and the bank shall be prepared to broadly accept technical
parameters laid down by leading public financial institutions. Also, setting up a
mechanism for an ongoing monitoring of the project implementation will ensure that
the credit disbursed is utilised for the purpose for which it was sanctioned.


Chapter X - Discounting / Rediscounting of Bills
A bank shall adhere to the following guidelines while purchasing / discounting /
negotiating / rediscounting of genuine commercial / trade bills:
144. A bank shall sanction working capital limits as also bills limit to borrowers, only
after proper appraisal of their credit needs and in accordance with the Board
approved policy.
145. The procedure for Board approval shall include banks’ core operating process
from the time the bills are tendered till these are realised. The bank shall review
their core operating processes and simplify the procedure in respect of bills
financing. In order to address the often-cited problem of delay in realisation of bills,
the bank shall utilize improved computer / communication networks like the
Structured Financial Messaging system (SFMS) and adopt the system of ‘value
dating’ of their clients’ accounts.
146. A bank shall purchase / discount / negotiate bills under LCs only in respect of
genuine commercial and trade transactions of their borrower constituents who
have been sanctioned regular credit facilities by the banks. The bank shall not,
therefore, extend such facilities to non-constituent borrower or / and non-
constituent member of a consortium / multiple banking arrangement. However, in
cases where negotiation of bills drawn under LC is restricted to a particular bank,
and the beneficiary of the LC is not a constituent of that bank, the bank concerned
may negotiate such an LC, subject to the condition that the proceeds shall be
remitted to the regular banker of the beneficiary. The prohibition regarding
negotiation of unrestricted LCs of non-constituents shall continue to be in force.
147.  Sometimes, a beneficiary of the LC may want to discount the bills with the LC
issuing bank itself. In such cases, the bank shall discount bills drawn by beneficiary
only if the bank has sanctioned regular fund- based credit facilities to the
beneficiary. With a view to ensuring that the beneficiary’s bank is not deprived of
cash flows into its account, the beneficiaries should get the bills discounted /
negotiated through the bank with whom it is enjoying sanctioned credit facilities.
148. Bills purchased / discounted / negotiated under LC (where the payment to the
beneficiary is not made ‘under reserve’) shall be treated as an exposure on the LC
issuing bank and not on the borrower. All clean negotiations as indicated above


shall be assigned the risk weight as is normally applicable to inter-bank exposures,
for capital adequacy purposes. In the case of negotiations ‘under reserve’, the
exposure shall be treated as on the borrower and risk weight assigned accordingly.
However, in cases where the bills discounting / purchasing / negotiating bank and
LC issuing bank are part of the same bank, i.e. where LC is issued by the Head
Office or branch of the same bank, then the exposure shall be taken on the third
party / borrower and not on the LC issuing bank.
149. While purchasing / discounting / negotiating bills under LCs or otherwise, banks
shall establish genuineness of underlying transactions / documents.
150. The bank shall ensure that blank LC forms are kept in safe custody as in case
of security items like blank cheques, demand drafts etc. and verified / balanced on
daily basis. LC forms shall be issued to customers under joint signatures of the
bank’s authorised officials.
151. The practice of drawing bills of exchange claused ‘without recourse’ and issuing
letters of credit bearing the legend ‘without recourse’ shall be discouraged because
such notations deprive the negotiating bank of the right of recourse it has against
the drawer under the Negotiable Instruments Act. The bank shall negotiate bills
drawn under LCs, on either a ‘with recourse ‘or ‘without recourse ‘basis, based on
their perception about the credit worthiness of the LC issuing bank. However, the
bank shall not purchase / discount other bills (the bills not drawn under LC) on a
‘without recourse ‘basis.
152. The bank shall not purchase / discounted / negotiate accommodation bills. The
underlying trade transactions shall be clearly identified, and a proper record
thereof maintained at the branches conducting the bills business.
153. The bank shall be circumspect while discounting bills drawn by front finance
companies set up by large industrial groups on other group companies.
154. Bills rediscount shall be restricted to usance bills held by other banks. The bank
shall not rediscount bills earlier discounted by non-bank financial companies
(NBFCs) except in respect of bills arising from sale of light commercial vehicles
and two / three wheelers.
155. The bank shall exercise its commercial judgment in discounting of bills of the
services sector. However, while discounting such bills, the bank shall ensure that


actual services are rendered, and accommodation bills are not discounted.
Services sector bills shall not be eligible for rediscounting. Further, providing
finance against discounting of services sector bills shall be treated as unsecured
advance and, therefore, shall be within the norm prescribed by the Board of the
bank for unsecured exposure limit.
156. In order to promote payment discipline which would, to a certain extent,
encourage acceptance of bills, all corporates and other constituent borrowers
having turnover above threshold level as fixed by the bank’s Board of Directors
shall be mandated to disclose ‘aging schedule’ of their overdue payables in their
periodical returns submitted to banks.
157. The bank shall not enter into Repo transactions using bills discounted /
rediscounted as collateral.


Chapter XI - Acquisition Finance
A. 23[*****
158. *****
159. *****
160. *****
161.  *****
162.  *****
163. *****
164.  *****
165.  *****
B. *****
166.  *****
167. *****
168. *****
169.  *****
C. *****
170. *****]
24[
170A. Without prejudice to the provisions of Foreign Exchange Management Act,
1999 and the rules and regulations framed thereunder, acquisition finance may be
extended by a bank to an Indian non-financial company to acquire ‘control’, or  to
increase its stake towards acquiring ‘control’, over a domestic or foreign non-
financial target company as strategic investment – i.e., an investment driven by the

23 Deleted with effect from July 01, 2026 vide Reserve Bank of India (Commercial Banks – Credit Facilities)
Amendment Directions, 2026 (Revised) dated March 30, 2026
24 Inserted with effect from July 01, 2026 vide Reserve Bank of India (Commercial Banks – Credit Facilities)
Amendment Directions, 2026 (Revised) dated March 30, 2026


core objective of creating long-term value for the acquirer through potential
synergies, rather than mere financial restructuring for short-term gains.
170B. In cases where acquiring control in a target company leads to control over
multiple companies due to control of such companies by the target company, the
criteria of potential synergy must be suitably assessed considering all such
companies.
 Provided that, acquisition finance shall not be extended to an acquiring company
for acquisition of a non-financial target company, which has one or more financial
entities as subsidiaries or Joint Ventures.
170C. Acquisition finance may also be provided by banks to refinance existing
acquisition debt of an acquiring company, subject to compliance with the provisions
of these Directions and prudential requirements as specified in paragraph 6(12) of
Reserve Bank of India (Commercial Banks – Resolution of Stressed Assets)
Directions, 2025, at the time of refinance.
 Provided that, refinance of acquisition finance can take place only when the
acquisition finance has been concluded in all aspects, resulting in establishment of
control of the target company by the acquiring company.
Provided further that, the refinance shall not be used for repayment of acquiring
company’s contribution or for any purpose other than the retirement of the
acquisition finance debt.
D. Board approved policy
170D. Banks shall put in place a Board approved policy on acquisition finance, suitably
incorporating the underwriting benchmarks that address the structural complexities
of such transactions, in particular relating to exposure limits, equity contribution,
leverage multiples, and cash-flow certainty.
E. Eligible Entities and Conditions
170E. Acquisition finance can be extended:
(1) to the acquiring company for acquisition of target company directly by it; or


(2) to the acquiring company, for on-lending to a non-financial subsidiary
incorporated in India or overseas for acquisition of a target company by such
a subsidiary; or

(3) to an existing non-financial subsidiary of the acquiring company
incorporated in India or overseas, on the strength of the acquiring company;
or
(4) to a step-down special purpose vehicle (SPV) set up by the acquiring
company singly or jointly with another non-financial company, in India or
overseas specifically for the purpose, provided that the SPV has no
business purpose other than the acquisition and holding of the target. This
shall be without prejudice to the extant norms relating to Core Investment
Companies.
Provided that, where the acquiring company holds less than a majority of voting
rights in a SPV or its subsidiary through which acquisition is being done,
acquisition finance shall be permitted only if:
(a) the acquiring company holds the single largest voting block in the SPV or
subsidiary, as the case may be; and,
(b) no other shareholder or group of shareholders acting in concert holds rights
that could override or veto the acquiring company's control over the SPV
or subsidiary.
170F. Acquisition finance shall be subject to the following conditions:
(1) Financial criteria of acquiring company:
170G. The acquiring company (or, where acquisition is through an SPV or subsidiary,
the acquiring company controlling such SPV or subsidiary) shall meet the following
financial criteria at the time of sanctioning the acquisition finance:
(i)
If listed on a recognized stock exchange in India: (a) Minimum net worth
of ₹500 crore; and (b) Net profit after taxes reported in each of the
previous three consecutive financial years.
(ii)
If unlisted: (a) Minimum net worth of ₹500 crore; (b) Net profit after taxes
reported in each of the previous three consecutive financial years, and
(c) an investment grade rating (BBB- or above) from a credit rating


agency. If there is no rating available for the acquiring company at the
time of sanction, it shall have to be obtained prior to disbursement of
acquisition finance.
Explanation:
(i)
The above financial criteria of the acquiring company shall be examined
at consolidated as well as standalone levels.
(ii)
Net Worth shall be computed in accordance to the provisions of Section
2(57) of the Companies Act 2013.
(2) Credit Assessment and Financing Conditions
170H. Credit assessment shall be conducted on a pro-forma consolidated basis,
incorporating the financials of the acquiring company and the financials of the
target company on a consolidated basis.
170I. Total bank financing shall not exceed 75 per cent of the acquisition value, as
independently assessed by the bank as under:
(1)
Listed Company: Valuation as determined by one independent valuer (to
be appointed by the bank) as per para 8 (2) (e) of SEBI (Substantial
Acquisition of Shares and Takeovers) Regulations, 2011 (‘SEBI SAST
Regulations’) for valuing shares not frequently traded (using valuation
parameters including, book value, comparable trading multiples, and such
other parameters as are customary for valuation of shares of such
companies);
(2)
Unlisted company: Lower of the valuation determined by two independent
valuers (to be appointed by the bank) as per para 8 (2) (e) of SEBI SAST
Regulations, 2011 for valuing shares not frequently traded (using valuation
parameters including, book value, comparable trading multiples, and such
other parameters as are customary for valuation of shares of such
companies).
170J. The acquiring company must contribute the remaining amount out of its own
funds.
Explanation


(i)
Own funds, for this purpose, shall mean funds demonstrably sourced from
the acquiring company's internal accruals, sale of assets or redemption of
investments, or issuance of fresh equity.
(ii)
Proceeds of any borrowing; or any instrument that carries a fixed repayment
obligation or a put option exercisable by the investor; or any intragroup
funding where the source entity has itself borrowed to make the contribution,
shall not constitute own funds.
Provided that, the acquiring company, if listed, may utilise bridge finance to satisfy
the minimum own funds requirement, subject to the following:
a.
the repayment of the bridge finance must be only through internal accruals
or an equity issue or asset sales, within a specified period (maximum 12
months).
b.
if the bridge finance is provided by a bank, it shall be on a secured basis.
c.
Bridge finance should not result in dilution of security coverage for the
acquisition finance.
170K. A corporate guarantee from the acquiring company shall be mandatory in cases
of acquisition finance extended to a subsidiary or an SPV of the acquiring
company.
170L. Post-acquisition, Debt to Equity ratio at the acquiring company’s consolidated
balance sheet level shall not exceed 3:1 on a continuous basis.
(3) Control acquisition requirements
170M. The instruments through which such control is sought to be achieved may
include equity shares, compulsorily convertible preference shares and
compulsorily convertible debentures conferring control over the target company.
Provided that, all debt claims of the acquiring company or its group entities on the
target company shall rank subordinate to the claims of the bank(s) extending
acquisition finance, for the full tenor of the credit facility.
170N. Control may be established through a single transaction, or a series of inter-
connected transactions but completed within 12 months from the date of first
disbursal of the acquisition finance.


Provided that, where the acquiring company already holds control over the target
company prior to seeking acquisition finance, acquisition finance may be extended
only for acquiring additional stake that crosses a substantial threshold of 26 per
cent, 51 per cent, 75 per cent, 90 per cent of voting rights, each conferring
materially enhanced governance or control rights under applicable law.
(4) Related Party Restrictions:
170O. The acquiring company and the target company shall not be related parties,
where "related party" means:
(i) Entities having a relationship as defined under Section 2(76) of the
Companies Act, 2013; or
(ii) Entities under common control, common management, or common
promoter group, whether directly or indirectly.
Provided that, the above restrictions shall not apply for financing acquisition of
additional stake as prescribed under proviso to 170N above.
G. Security Creation and Valuation
170P. A bank may determine the extent and nature of security cover for acquisition
finance.
Provided that, acquisition finance shall be secured by the financial instruments
issued by the target company through which control over it is acquired by the
acquiring company, without prejudice to the provisions of Section 19(2) of the BR
Act 1949.
Provided further that, other unencumbered assets of the acquirer and/or target
company, and promoter’s personal guarantee may be taken as additional collateral
as per the bank’s policy.
170Q. Instruments acquired by the acquiring company as allowed in Paragraph 170M
shall be free from any encumbrance.
H. Other Conditions
170R. Acquisition finance undertaken by overseas branches of an Indian bank as part
of syndication arrangements, shall not be subject to the Directions given in this
chapter provided that, the funding contribution of a bank under such a syndication


arrangement for a particular deal, across all its overseas branches, shall not
exceed 20 per cent of total funding under the deal.
170S. Banks shall fix limits for their aggregate exposures towards acquisition finance
within the regulatory limit as specified in Chapter V of the Reserve Bank of India
(Commercial Banks – Concentration Risk Management) Directions, 2025.”
]


Chapter XII - Credit Facilities to Overseas Joint Ventures (JV) / Wholly Owned
Subsidiaries Abroad and overseas Step-down Subsidiaries of Indian
Companies
171. The bank may extend fund-based facilities to Indian Joint Ventures / Wholly–
owned Subsidiaries abroad and Step-down subsidiaries which are wholly owned
by overseas subsidiaries of Indian Corporates. The bank may also provide buyer’s
credit / acceptance finance to overseas parties for facilitating export of goods and
services from India. While extending such facilities banks should comply with the
following conditions:
(1) Fund-based credit facilities shall be granted only to those joint ventures where
the holding by the Indian company is more than 51 per cent.
(2) Proper systems for management of credit and interest rate risks arising out of
such cross- border lending are in place.
(3) While extending such facilities, banks shall have to comply with Section 25 of
the Banking Regulation Act, 1949, in terms of which the assets in India of every
quarter shall not be less than 75 per cent of its demand and time liabilities in
India.
(4) The resource base for such lending should be funds held in foreign currency
accounts such as FCNR(B), EEFC, RFC, etc. in respect of which banks have
to manage exchange risk.
(5) Maturity mismatches arising out of such transactions are within the overall gap
limits approved by the Reserve Bank.
(6) Adherence to all existing safeguards / prudential guidelines relating to capital
adequacy, exposure norms etc. applicable to domestic credit / non- credit
exposures.
(7) The above exposure shall be subject to a limit of 20 per cent of banks'
unimpaired capital funds (Tier I and Tier II capital).
172. While extending fund-based facilities to step-down subsidiaries of overseas
subsidiaries of Indian Corporates, including to those beyond the first level, to
finance the projects undertaken abroad, it shall further be ensured that:
(1) The immediate overseas subsidiary of the Indian company shall be directly
controlled by the Indian parent company through any of the modes of control


recognised under the Indian Accounting Standards. In addition, the Indian
parent company must directly hold a minimum 51 per cent of its shareholding.
Explanation: As per the Indian Accounting Standards, control has been defined
as (a) the ownership, directly or indirectly, through subsidiary(ies), of more than
one-half of the voting power of an enterprise; or (b) control of the composition
of the board of directors in the case of a company or of the composition of the
corresponding governing body in case of any other enterprise so as to obtain
economic benefits from its activities
(2) All the step-down subsidiaries, including the intermediate ones, shall be wholly
owned subsidiary of the immediate parent company or its entire shares shall
be jointly held by the immediate parent company and the Indian parent
company and / or its wholly owned subsidiary. The immediate parent should,
wholly or jointly with Indian parent company and / or its wholly owned
subsidiary, have control over the step-down subsidiary.
(3) In addition to the stipulations above, for issuance of extension of any fund
based facilities to step-down subsidiaries of overseas subsidiaries of Indian
Corporates, including to those beyond the first level, to finance the projects
undertaken abroad, the banks shall further ensure that:
(i) The setup of the step-down subsidiary shall be such that bank can
effectively monitor the facilities granted by it.
(ii) The bank shall make additional provision of two per cent (in addition to
country risk provision that is applicable to all overseas exposures) against
standard assets representing all exposures to the step-down subsidiaries,
to cover the additional risk arising from complexity in the structure, location
of different intermediary entities in different jurisdictions exposing the
Indian company, and hence the bank, to greater political and regulatory
risk.
173. Further, the loan policy for such fund-based facility shall be, inter-alia, in
keeping with the following:
(1) Grant of such loans is based on proper appraisal and commercial viability of
the projects and not merely on the reputation of the promoters backing the
project. Non-fund based facilities shall be subjected to the same rigorous
scrutiny as fund-based limits.


(2) The countries where the joint ventures / wholly owned subsidiaries are located
shall have no restrictions applicable to these companies in regard to obtaining
foreign currency loans or for repatriation etc. and shall permit non-resident
banks to have legal charge on securities / assets abroad and the right disposal
in case of need.
174. The bank shall be guided by the Master Direction - External Commercial
Borrowings, Trade Credits and Structured Obligations, for raising loans through
ECB towards repayment of rupee loans availed of from domestic banking system.
175. For extension of non-fund based facilities, the bank shall be guided by Chapter
XVI of these Directions.


Chapter XIII - Loans Against Financial Assets
A. 25[*****
176. *****
177. *****
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179. *****
B. *****
180. *****
181. *****
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186. *****
C. *****
187. *****
188. *****
D. *****
189. *****
E. *****
190. *****
191. *****

25 Deleted with effect from July 01, 2026 vide Reserve Bank of India (Commercial Banks – Credit Facilities)
Amendment Directions, 2026 (Revised) dated March 30, 2026


F. *****
192.  *****
193. *****
G. *****
194. *****
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H. *****
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I.
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J. *****
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211. *****
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M. Advances against Fixed Deposit Receipts (FDRs)
215. The bank shall desist from sanctioning advances against FDRs or other term
deposits of other banks.
216. Grant of advance against NR(E) and FCNR(B) deposits shall be subject to the
guidelines issued under Foreign Exchange Management Act, 1999.
N. 26[*****
217. *****]
O. Grant of Loans for acquisition of / investing in Small Saving Instruments
218. The grant of loans for acquiring / investing in small saving schemes does not
promote fresh savings and, rather, channelises the existing savings in the form of
bank deposits to small savings instruments and thereby defeats the very purpose
of such schemes. The bank shall, therefore, ensure that no loans are sanctioned
for acquisition of / investing in Small Savings Instruments including Kisan Vikas
Patras.
P. 27[*****
219. *****]
28[
Q. Loans against Eligible Securities
Q.1
General Conditions

26 Deleted with effect from July 01, 2026 vide Reserve Bank of India (Commercial Banks – Credit Facilities)
Amendment Directions, 2026 (Revised) dated March 30, 2026
27 Deleted with effect from July 01, 2026 vide Reserve Bank of India (Commercial Banks – Credit Facilities)
Amendment Directions, 2026 (Revised) dated March 30, 2026
28 Inserted with effect from July 01, 2026 vide Reserve Bank of India (Commercial Banks – Credit Facilities)
Amendment Directions, 2026 (Revised) dated March 30, 2026


219A. Banks may extend credit facilities against the collateral of eligible securities, as
permitted in this chapter, as per their approved policy (hereinafter called the policy).
The policy shall, at the minimum, specify the criteria for selecting securities as
collateral; determining portfolio-level as well as single borrower/group borrower
limits; concentration limits for exposure to single securities; LTV/margins and
haircuts for different securities; and rules for ongoing valuation and margin calls.
219B. Notwithstanding the above, following loans by a bank shall not be permitted:
(1) Loans against its own securities;
Provided that, a bank may extend loans to individuals against Long-Term
Bonds issued by it for infrastructure financing under the provisions of the
Reserve Bank of India (Commercial Banks – Resource Raising Norms)
Directions, 2025. The Board of the bank shall frame a policy in this regard,
prescribing suitable margins, purpose of the loan, and other necessary
safeguards. Such loans shall be subject to a ceiling, say, ₹10 lakh per
borrower; and tenure of the loan shall not exceed the maturity period of the
underlying bonds. It is also clarified that a bank shall not extend loans
against such bonds issued by other banks.
Provided further that, a bank may lend against CDs and buy back their own
CDs where such CDs are held by mutual funds, subject to the provisions of
paragraph 42 (1) of the SEBI (Mutual Funds) Regulations, 2026. Further,
such finance if extended to equity-oriented mutual funds shall form part of
banks’ capital market exposure, as hitherto.
(2) loans against partly paid shares;
(3) loans against securities which are under any lock-in requirements;
(4) loans against collateral of Indian Depository Receipts (IDRs);
(5) loans against securities of such entities to which banks are not allowed to
grant loans and advances;
(6) loans to companies for buy-back of shares/ securities as specified in
paragraph 23 of Reserve Bank of India (Commercial Banks – Credit Risk
Management) Directions, 2025;
(7) loans against Commercial Papers and Non-Convertible Debentures of
original or initial maturity upto one year;


219C. While undertaking lending activities under the provisions of this chapter, a bank
shall:
(1) put in place robust mechanisms to monitor end use of the funds.
(2) stipulate suitable risk limits taking into account inter alia the liquidity,
volatility, and potential stress period corrections in the price of securities.
(3) ensure that the residual maturity of the securities initially taken as collateral,
or subsequently substituted for the original collateral securities, is equal to
or longer than the tenor of the loan.
Explanation: Condition of residual maturity is applicable in cases of non-
perpetual securities.
(4) ensure that provision of Section 19(2) of Banking Regulation Act, 1949 on
holding of shares are adhered to.
(5) ensure that the prudential limits prescribed under these Directions are
adhered to even when loans are extended to any of the joint holders of
securities by treating the joint holders as availing proportionate amount of
loan sanctioned to them jointly.
(6) undertake the creation and invocation of pledge/hypothecation/lien against
Government securities in terms of Section 28 of the Government Securities
Act, 2006, Chapter VII of Government Securities Regulations, 2007; any
other specific requirements as issued by the Government for such
securities; and relevant guidelines issued by the Reserve Bank from time to
time.
(7) ensure that loans taken against Sovereign Gold Bond (SGB) are in terms of
the instructions specified in SGB notification issued by Government of India
and the operational instructions relating to creation and invocation of
pledge/hypothecation/lien as per paragraph 11 of circular on ‘Sovereign
Gold Bond Scheme of the Government of India (GoI) – Procedural
Guidelines – Consolidated’ dated October 22, 2021, as amended from time
to time.
219D. All exposures arising out of loans against eligible securities under this Chapter
shall be included as CME, as specified in Reserve Bank of India (Commercial
Banks - Concentration Risk Management) Directions, 2025, except wherever
specifically exempted.


Q.2
Lending to Individuals
Q.2.1 Scope
219E. Loans to individuals, including Hindu Undivided Families (HUFs) which are not
commercial entities, shall be covered under this section.
219F. Banks may lend to individuals against eligible securities, subject to the LTVs
and prudential ceilings specified hereunder.
Q.2.2 LTV Requirements
219G. Banks shall lay down the LTV for loans against eligible securities to individuals
as per their credit policy, subject to the following ceilings:
Eligible Securities
LTV Ceiling
Government Securities (including T-Bills)
As per bank’s policy
Sovereign Gold Bonds (SGBs)
As applicable in case
of loans against Gold
and Silver Collateral
Listed shares and listed convertible debt
securities
60 per cent
Mutual Funds (excluding Debt MFs), Units of ETF
and Units of REITs/InvITs
75 per cent
Debt Mutual Funds
85 per cent
Listed Debt Securities with rating:
           AAA
AA – BBB

85 per cent
75 per cent
219H. LTV shall be monitored on an ongoing basis and a bank shall take steps to
rectify the breaches immediately, but in no case later than seven working days from
the day of occurrence of such a breach.
219I. Valuation of securities taken as collateral, for the purpose of LTV shall be as
per the following norms:
(1) Valuation of debt securities shall be in terms of Reserve Bank of India
(Commercial Banks – Classification, Valuation, and Operation of Investment
Portfolio) Directions, 2025, as updated from time to time.
(2) Listed shares and units of mutual funds/ETFs/REIT/InvITs shall be valued
at lower of the average daily closing prices/NAVs for the last six months or
the closing price/NAV of the previous trading day.


Q.2.3 Prudential Ceilings
219J. Banks may fix their own prudential limits in terms of their approved policy for
loans to individuals against collateral of Government securities (including T-Bills),
listed debt securities and units of debt mutual fund schemes.
Provided that, during the tenor of the loan, if the credit rating of the particular
debt security is downgraded below BBB(-), banks shall ensure that those
securities are replaced with any other eligible security within a period of thirty
working days, or proportionate portion of the exposure is repaid.
219K. The amount of loan from the banking system that can be granted to individuals
against eligible securities, other than those mentioned in paragraph 219J above,
shall be capped at ₹1 crore per individual.
219L. Within the above limits as prescribed in paragraphs 219J and 219K above, loan
up to ₹25 lakh per individual may be granted for the purpose of acquisition of
securities in secondary markets.
Q.2.4 IPO/FPO/ESOP Financing
219M. Banks may grant loans to individuals after ensuring due diligence for
subscribing to shares under initial public offer (IPO), follow-on public offer (FPO),
or under employee stock option plan (ESOP) upto ₹25 lakh per individual at the
banking system level.
Provided that the loan amount shall not exceed 75 per cent of the subscription
value, i.e., borrowers shall contribute a minimum cash margin of 25 per cent.
Provided further that no loan, whether secured or unsecured, shall be granted
by a bank to its own employees or Employees’ Trust set up by the bank for
purchasing its own Securities under IPOs/FPOs/ESOPs or from the secondary
market.
219N. It shall be ensured that a lien is created on the shares to be allotted under the
IPOs/FPOs/ESOPs, and such shares shall be pledged to the lender upon
allotment.
Q.3
Lending to non-individuals (other than CMIs)
Q.3.1 Loans for General Business Purposes


219O. A bank may provide finance, as per its approved policy, to non-financial entities
against eligible securities, in addition to other collateral, for financing their working
capital or for other productive purposes.
Q.3.2 Bridge Finance for Financing Promoter’s stake in New Companies
219P. Banks may put in a Board approved policy, to provide bridge finance to non-
financial corporates against the collateral of eligible securities held by them or
immovable properties for financing promoters’ stake for setting up new companies.
219Q. Such lending under paragraph 219O and 219P against eligible securities shall
be subject to the LTV ceiling as specified in paragraph 219G of these Directions.
Banks shall ensure the end use of funds in all such cases is not used for
speculative purposes.
Q.3.3 Issue of Irrevocable Payment Commitments
219R. A custodian bank may issue Irrevocable Payment Commitments (IPCs) on
behalf of their clients, in favour of a Clearing Corporation of a Stock Exchange,
subject to meeting any one of the following conditions:
(1) The IPC issuer bank has an agreement with its client which allows the bank
an inalienable right over the securities to be received as pay out in any
settlement; or,
(2) Such transactions are fully pre-funded i.e., either clear INR funds are
available in the customer’s account or, in case of FX deals involving FPIs,
the bank’s nostro account has been credited before the issuance of the IPC.


Chapter XIII A – Credit Facilities to Capital Market Intermediaries (CMIs)
A. Scope
219S. Provisions of this Chapter are applicable to lending to CMIs, as defined under
these Directions.
B. General Conditions
219T. Credit facilities may be extended only to CMIs which are registered and
regulated by a financial sector regulator and are in compliance with the prudential
norms prescribed by such regulator.
219U. All exposures to CMIs shall be included as CME, except wherever specifically
exempted.
219V. Banks shall put in place counterparty as well as aggregate exposure limits for
CMIs, within the overall prudential limits for CME, and relevant limits prescribed
under the Large Exposures Framework (LEF) and Intra-group transactions and
exposures (ITE) in terms of Reserve Bank of India (Commercial Banks –
Concentration Risk Management) Directions, 2025.
C. Permissible and Prohibited Credit Facilities
219W. A bank may provide need-based credit facilities to CMIs to fund their day-to-
day operations, including general working capital facilities and specific facilities
such as financing for margin trading undertaken by stockbrokers; overdraft/credit
line facility to stockbrokers/commodity brokers/clearing members to meet
settlement related timing mismatches; and market making (for equity as well as
debt securities, including State and Central Government securities).
219X. A bank may also issue guarantees on behalf of brokers or professional clearing
members and in favour of exchanges or clearing houses, as applicable, in lieu of:
(1) security deposit to the extent it is acceptable in the form of bank guarantee
as laid down by stock exchanges;
(2) margin requirements as per exchange regulations.
219Y. Such guarantees shall be secured by a minimum collateral of 50 per cent, out
of which 25 percent shall be in cash.


219Z. Banks shall not provide credit facilities to a CMI for acquisition of securities on
its own account, including for proprietary trading or investments.
Provided that:
(1) a bank may extend finance to approved market makers in equity and debt
securities on a fully secured basis.
(2) a bank may provide working capital finance to a CMI for warehousing of
debt securities, including Government Securities, upto a maximum period
of 45 days for fulfilling firm demand/request from its clients. Such financing
should be on fully secured basis with appropriate haircut on securities
pledged.
(3) a bank may extend other working capital facilities against a 100 per cent
collateral of cash, cash equivalents and Government Securities (including
T-Bills).
219ZA. A bank may extend guarantees in terms of paragraph 219X for proprietary
trading by CMIs subject to the facility being fully secured by collateral of cash, cash
equivalents and Government Securities (including T-Bills), out of which a minimum
50 per cent shall be cash or fixed deposits maintained with the lending bank. Banks
should ensure through a proper mechanism that guarantees issued for non-
proprietary purposes are not used to facilitate proprietary trading.
D.
Security Coverage
219ZB. Without prejudice to paragraphs 219Z and 219ZA, all credit facilities to CMIs,
including intraday facilities, unless otherwise stated, shall be provided on a fully
secured basis (i.e. 100 per cent collateral). Credit facilities to CMIs can be secured
by eligible securities as defined in these Directions or other collaterals such as
cash, other permissible financial assets (except Commercial Paper and Non-
Convertible Debentures of original or initial maturity up to one year), immovable
properties, receivables, bank guarantees and standby letter of credit (SBLC).
Explanation: Receivables in this context shall also include proceeds of cash
and securities arising on account of a capital market transaction other than
margin trading facility (MTF) transactions.
Provided that:


(1) In case of intra-day limits extended to CMIs, a relaxed minimum collateral
requirement of 50 per cent shall apply in case the intra-day limit is utilised
for meeting shortfall arising on account of settlement timing difference in
centrally cleared trades placed on behalf of clients, provided the CMI has
expected receivables from a QCCP fully covering such intra-day
drawdowns.
(2) In respect of financing to brokers for margin trading facility (MTF) provided
by them to their clients in terms of SEBI Regulations, the facility shall be fully
secured by collateral of cash, cash equivalents and Government Securities
(including T-Bills) out of which a minimum 50 per cent shall be cash.
(3) A bank shall apply suitable haircuts to various types of primary securities
and collateral securities, including eligible securities, subject to a minimum
haircut of 40 per cent in case of equity shares.
219ZC. In terms of para 414 of ‘Chapter XVI - Non-Fund Based (NFB) Credit Facilities’
of these Directions, banks cannot issue guarantee favouring another RE to enable
it to provide any fund-based credit facility to an obligor. Notwithstanding this
provision, counter-guarantees issued by other Indian banks and SBLCs issued by
foreign banks of repute, including foreign parent bank of a CMI, may also be
considered as eligible non-cash collateral wherever allowed for the purpose of this
Chapter. Provided that this shall be without prejudice to the extant FEMA
regulations.
219ZD. The collateral cover, as applicable, shall be maintained on an ongoing basis
and the facility agreements shall have explicit provisions for margin calls in the
event of shortfalls.
219ZE. A bank shall ensure that the collaterals placed for such financing generally
belong to the borrower CMI. Collateral belonging to a group entity/promoter of the
CMI may also be accepted, provided it is unencumbered, exclusively charged for
this facility and legally enforceable.
]


Chapter XIV - Finance to Non-Banking Financial Companies (NBFCs)
Background: Consistent with the policy of bestowing greater operational freedom to
banks in the matter of credit dispensation and in the context of mandatory registration
of NBFCs with the Reserve Bank, most of the aspects relating to financing of NBFCs
by banks have also been deregulated. However, in view of the sensitivities attached
to financing of certain types of activities undertaken by NBFCs, restrictions on
financing of such activities continue to be in force. In this context, NBFCs mean the
Non-Banking Financial Companies registered with the Reserve Bank of India, which
shall also include a Housing Finance Company (HFC) registered under Section 29A
of the National Housing Bank Act, 1987.
A. Finance to NBFCs registered with RBI
220. The ceiling on bank credit linked to Net Owned Fund (NOF) of NBFCs has been
withdrawn in respect of all NBFCs which are statutorily registered with the Reserve
Bank and are engaged in principal business of asset financing, loan, factoring and
investment activities. Accordingly, the bank shall extend need based working
capital facilities as well as term loans to all NBFCs registered with the Reserve
Bank and engaged in infrastructure financing, equipment leasing, hire-purchase,
loan, factoring and investment activities subject to provisions of paragraph 232 of
these Directions.
221. In the light of the experience gained by NBFCs in financing second hand assets,
the bank shall also extend finance to NBFCs against second hand assets financed
by them.
222. The bank shall formulate suitable loan policy with the approval of their Boards
of Directors within the prudential guidelines and exposure norms prescribed by the
Reserve Bank to extend various kinds of credit facilities to NBFCs subject to the
condition that the activities indicated in paragraphs 224, 225, 228, 229 and 230
are not financed by them.
B. Finance to NBFCs not requiring Registration
223. In terms of Reserve Bank of India (Non-Banking Financial Companies –
Registration, Exemptions and Framework for Scale Based Regulation) Directions,
2025, a few categories of NBFCs are exempted from certain provisions of the


Reserve Bank of India Act, 1934, including the need for registration with the
Reserve Bank. For such NBFCs which do not need registration with the Reserve
Bank, the bank shall take its credit decisions on the basis of usual factors like the
purpose of credit, nature and quality of underlying assets, repayment capacity of
borrowers as also risk perception, etc. Further, while financing NBFCs, which do
not require registration with RBI, banks shall also refer to the guidelines /
notifications issued in this regard from time to time by the Ministry of Corporate
Affairs, Government of India.
C. Activities not eligible for Bank Credit
224. The following activities undertaken by NBFCs, are not eligible for bank credit:
(1) Bills discounted / rediscounted by NBFCs, except for rediscounting of bills
discounted by NBFCs arising from sale of -
(i) commercial vehicles (including light commercial vehicles), and
(ii) two-wheeler and three-wheeler vehicles, subject to the following conditions:
(a) the bills shall be drawn by the manufacturer on dealers only;
(b) the bills shall represent genuine sale transactions as may be
ascertained from the chassis / engine number; and
(c) before rediscounting the bills, the bank shall satisfy themselves about
the bona fides and track record of NBFCs which have discounted the
bills.
(2) Investments of NBFCs both of current and long-term nature, in any company /
entity by way of shares, debentures, etc. However, Stock Broking Companies
shall be provided need-based credit against shares and debentures held by
them as stock-in- trade.
In this context, current investments mean the investments classified in the
balance sheet of the borrower as 'current assets' and are intended to be held
for less than one year and long term investments mean all types of investments
other than that classified as 'current assets'.
(3) Unsecured loans / inter-corporate deposits by NBFCs to / in any company.
In this context, unsecured loans mean the loans not secured by any tangible
asset.


(4) All types of loans and advances by NBFCs to their subsidiaries, group
companies / entities.
(5) Finance to NBFCs for further lending to individuals for subscribing to Initial
Public Offerings (IPOs) and for purchase of shares from secondary market.
225. Leased and Sub-Leased Assets
As banks can extend financial assistance to equipment leasing companies, they shall
not enter into lease agreements departmentally with such companies as well as other
NBFCs engaged in equipment leasing.
D. Finance to Factoring Companies
226. Notwithstanding the restrictions mentioned at paragraph 224, the bank may
extend financial assistance to support the factoring business of Factoring
Companies, viz., ‘NBFC-Factors’ and ‘NBFC-ICCs holding certificate of
registration under the Factoring Regulation Act, 2011’, subject to the following
conditions:
(1) The companies qualify as factoring companies; and carry out their business
under the provisions of the Factoring Regulation Act, 2011 and Notifications
issued by the Reserve Bank in this regard from time to time.
(2) The financial assistance extended by the Factoring Companies is secured by
hypothecation or assignment of receivables in their favour.
227. In addition to the above, NBFC-Factors must also satisfy the following criteria
to be eligible for bank finance -
(1) They derive at least 50 per cent of their income from factoring activity.
(2) The receivables purchased / financed, irrespective of whether on 'with
recourse' or 'without recourse' basis, form at least 50 per cent of their assets.
(3) The assets / income referred to at (1) and (2) above shall not include the assets
/ income relating to any bill discounting facility extended by them.
E. Other Prohibitions on Finance to NBFCs
228. Bridge loans / interim finance
The bank shall not grant bridge loans of any nature, or interim finance against
capital / debenture issues and / or in the form of loans of a bridging nature pending
raising of long-term funds from the market by way of capital, deposits, etc. to all


categories of NBFCs. The bank shall strictly follow these instructions and ensure
that they are not circumvented in any manner whatsoever by purport and / or intent
by sanction of credit under a different nomenclature like unsecured negotiable
notes, floating rate interest bonds, etc., as also short-term loans, the repayment of
which is proposed / expected to be made out of funds to be or likely to be mobilised
from external / other sources and not out of the surplus generated by the use of
the asset(s).
229. Advances against collateral security of shares to NBFCs
Shares and debentures shall not be accepted as collateral securities for secured
loans granted to NBFC borrowers for any purpose.
230. Restriction on guarantees for placement of funds with NBFCs
The bank shall comply with the provisions of Chapter XVI of these Directions
regarding restrictions on issuing guarantees for placement of funds with NBFCs or
other non-bank entities.
F. Other Instructions
231. For prudential ceilings for exposure to NBFCs, the bank shall be guided by the
instructions contained in the Reserve Bank of India (Commercial Banks –
Concentration Risk Management) Directions, 2025.
232. For restrictions regarding investments made by the bank in securities /
instruments issued by NBFCs, it shall be guided by the instructions contained in
the Reserve Bank of India (Commercial Banks – Classification, Valuation and
Operation of Investment Portfolio) Directions, 2025.
233. For risk weights for bank credit to NBFCs, the bank’s exposure to NBFCs shall
be subject to capital charge as per the Risk Weight prescribed in Reserve Bank of
India (Commercial Banks – Prudential Norms on Capital Adequacy) Directions,
2025.


Chapter XV - Export Credit
Background: The Reserve Bank first introduced the scheme of Export Financing in
1967. The scheme is intended to make short-term working capital finance available
to exporters at internationally comparable interest rates. Export credit is available
both in Rupee as well as in foreign currency.
A. Rupee Pre-shipment Credit / Packing Credit
A.1
Period of Advance
234. The period of a packing credit advance shall be determined by the bank based
on the specific circumstances of each case, including the time required for
procuring, manufacturing or processing (as applicable) and shipping the relative
goods / rendering of services. The banks shall ensure that the sanctioned period
is sufficient to enable the exporter to ship the goods / render the services within a
reasonable timeframe.
235. If pre-shipment advances are not adjusted by submission of export documents
within 360 days from the date of advance, the advances shall cease to qualify for
export credit to the exporter ab initio.
A.2
Disbursement of Packing Credit
236. Generally, each packing credit sanctioned shall be maintained as separate
account for the purpose of monitoring the period of sanction and end-use of funds.
237. The bank shall release the packing credit in one lump sum or in stages as per
the requirement for executing the orders / LC.
238. The bank shall maintain separate accounts for different stages of processing,
manufacturing etc., depending on the types of goods / services to be exported
(e.g., hypothecation, pledge). The bank shall ensure that the outstanding balance
in accounts are adjusted by transfer from one account to the other and finally by
proceeds of relative export documents on purchase, discount, etc.
239. The bank shall also monitor the progress made by the exporters in timely
fulfilment of export orders.


A.3
Liquidation of Packing Credit
240. The packing credit / pre-shipment credit granted to an exporter shall be
liquidated out of proceeds of bills drawn for the exported commodities on its
purchase, discount etc., thereby converting pre-shipment credit into post-shipment
credit. Further, subject to mutual agreement between the exporter and the banker
it can also be repaid / prepaid out of balances in Exchange Earners Foreign
Currency A/c (EEFC A/c) as also from Rupee resources of the exporter to the
extent exports have actually taken place.
241. Packing credit in excess of export value
(1) Where by-product can be exported
(2) Where the exporter is unable to tender export bills of equivalent value for
liquidating the packing credit due to the shortfall on account of wastage
involved in the processing of agro products like raw cashew nuts, etc., the bank
shall allow exporters, inter alia, to extinguish the excess packing credit by
export bills drawn in respect of by-product like cashew shell oil, etc.
(3) Where partial domestic sale is involved
(4) In respect of export of agro-based products like tobacco, pepper, cardamom,
cashew nuts etc., the exporter has to necessarily purchase a somewhat larger
quantity of the raw agricultural produce and grade it into exportable and non-
exportable varieties and only the former is exported. The non-exportable
balance is necessarily sold domestically. For the packing credit covering such
non-exportable portion, the bank shall charge the rate of interest applicable to
the domestic advance from the date of advance of packing credit.
(5) Export of deoiled / defatted cakes
(6) The bank shall grant packing credit advance to exporters of HPS groundnut
and deoiled / defatted cakes to the extent of the value of raw materials required
even though the value thereof exceeds the value of the export order. The
advance in excess of the export order shall be adjusted either in cash or by
sale of residual by-product oil within a period not exceeding 30 days from the
date of advance.
242. The bank shall, however, have operational flexibility to extend the following
relaxations to their exporter clients who have a good track record:


(1) Repayment / liquidation of packing credit with proceeds of export documents
shall; continue; however, this shall be with export documents relating to any
other order covering the same or any other commodity exported by the
exporter. While allowing substitution of contract in this way, the bank shall
ensure that it is commercially necessary and unavoidable. The bank shall also
satisfy itself about the valid reasons as to why packing credit extended for
shipment of a particular commodity cannot be liquidated in the normal method.
As far as possible, the substitution of contract shall be allowed if the exporter
maintains account with the same bank or it has the approval of the members
of the consortium, if any.
(2) The existing packing credit shall also be marked-off with proceeds of export
documents against which no packing credit has been drawn by the exporter.
However, it is possible that the exporter might avail of EPC with one bank and
submit the documents to another bank. In view of this possibility, the bank shall
extend such facility after ensuring that the exporter has not availed of packing
credit from another bank against the documents submitted. If any packing
credit has been availed of from another bank, the bank to which the documents
are submitted shall ensure that the proceeds are used to liquidate the packing
credit obtained from the first bank.
(3) These relaxations shall not be extended to transactions of sister / associate /
group concerns.
A.4
'Running Account' Facility
243. The pre-shipment credit to exporters is normally provided on lodgement of LCs
or firm export orders. However, due to certain reasons such as (i) seasonal
availability of raw materials, and (ii) time required for manufacture and shipment of
goods exceeding the delivery schedule under export contracts, the exporters may
need to procure raw material, manufacture goods, and keep them ready for
shipment in anticipation of receipt of letters of credit / firm export orders from the
overseas buyers. In view of the foregoing, a bank may extend Pre-shipment Credit
‘Running Account’ facility in respect of any commodity, without insisting on prior
lodgement of letters of credit / firm export orders, depending on its judgement
regarding the need to extend such a facility and subject to the following conditions:


(1) ‘Running Account’ facility can be extended only to those exporters whose track
record has been good as also to Export Oriented Units (EOUs) / Units in Free
Trade Zones / Export Processing Zones (EPZs) and Special Economic Zones
(SEZs).
(2) In all cases where Pre-shipment Credit ‘Running Account’ facility has been
extended, letters of credit / firm orders shall be produced within a reasonable
period of time to be decided by the bank.
(3) The bank shall mark off individual export bills, as and when they are received
for negotiation / collection, against the earliest outstanding pre-shipment credit
on 'First In First Out' (FIFO) basis. Needless to add that, while marking off the
pre-shipment credit in the manner indicated above, banks shall ensure that
export credit available in respect of individual pre-shipment credit does not go
beyond the period of sanction or 360 days from the date of advance, whichever
is earlier.
(4) Packing credit shall also be marked-off with proceeds of export documents
against which no packing credit has been drawn by the exporter.
244. If it is noticed that the exporter is found to be misusing the facility, the facility
shall be withdrawn forthwith.
245. In cases where exporters have not complied with the terms and conditions, the
advance shall not be treated as export credit ab initio.
246. Running account facility shall not be granted to sub-suppliers.
A.5
Export Credit against proceeds of cheques, drafts, etc. representing
advance payment for exports
247. Where exporters receive direct remittances from abroad by means of cheques,
drafts etc. in payment for exports, the bank shall grant export credit to exporters of
good track record till the realisation of proceeds of the cheque, draft etc. received
from abroad, after satisfying itself that it is against an export order, is as per trade
practices in respect of the goods in question and is an approved method of
realisation of export proceeds as per extant rules.


B. Rupee Pre-shipment Credit to specific sectors / segments
B.1
Rupee Export Packing Credit to manufacturer suppliers for exports
routed through STC / MMTC / Other Export Houses, Agencies etc.
248. The bank may grant export packing credit to manufacturer suppliers who do not
have export orders / letters of credit in their own name and goods are exported
through the State Trading Corporation / Minerals and Metal Trading Corporation
or other export houses, agencies etc.
B.2
Rupee Export Packing Credit to Sub-Suppliers
249. Packing credit may be shared between an Export Order Holder (EOH) and sub-
supplier of raw materials, components etc. of the exported goods as in the case of
EOH and manufacturer suppliers, subject to the following:
(1) Running Account facility is not contemplated under the scheme. The scheme
shall cover the LC or export order received in favour of Export Houses / Trading
Houses / Star Trading Houses etc. or manufacturer exporters only. The
scheme shall be made available to the exporters with good track record.
(2) Banker to an EOH shall open an inland LC specifying the goods to be supplied
by the sub-supplier to the EOH against the export order or LC received by it as
a part of the export transaction. On the basis of such a LC, the sub-supplier's
banker shall grant EPC as working capital to enable the sub-supplier to
manufacture the components required for the goods to be exported. On
supplying the goods, the LC opening bank shall pay to the sub-supplier's
banker against the inland documents received on the basis of inland LC. Such
payments will thereafter become the EPC of the EOH.
(3) It is up to the EOH to open any number of LCs for the various components
required with the approval of his banker / leader of consortium of banks within
the overall value limit of the order or LC received by him. Taking into account
the operational convenience, it is for the LC opening bank to fix the minimum
amount for opening such LCs. The total period of packing credit availed by the
sub-supplier(s), individually or severally and the EOH shall be within normal
cycle of production required for the exported goods. Normally, the total period
will be computed from the date of first drawal of packing credit by any one of
the sub-suppliers to the date of submission of export documents by EOH.


(4) The EOH shall be responsible for exporting the goods as per export order or
overseas LC and any delay in the process will subject it to the penal provisions
issued from time to time. Once the sub-supplier makes available the goods as
per inland LC terms to the EOH, its obligation of performance under the
scheme shall be treated as complied with and the penal provisions shall not
be applicable to him for delay by EOH, if any.
(5) The scheme is an additional window besides the existing system of sharing of
packing credit between EOH and manufacturer in respect of exported goods
as detailed in paragraph  248 above. The scheme shall cover only the first
stage of production cycle. For example, a manufacturer exporter shall be
allowed to open domestic LC in favour of his immediate suppliers of
components etc. that are required for manufacture of exportable goods. The
scheme shall not be extended to cover suppliers of raw materials / components
etc. to such immediate suppliers. In case the EOH is merely a trading house,
the facility shall be available commencing from the manufacturer to whom the
order has been passed on by the Trading House.
(6) EOUs / EPZ / SEZ units supplying goods to another EOU / EPZ / SEZ unit for
export purposes are also eligible for rupee pre-shipment export credit under
this scheme. However, the supplier EOU / EPZ / SEZ unit shall not be eligible
for any post-shipment facility as the scheme does not cover sale of goods on
credit terms.
(7) The scheme does not envisage any change in the total quantum of advance or
period. Accordingly, the credit extended under the system shall be treated as
export credit from the date of advance to the sub-supplier to the date of
liquidation by EOH under the inland export LC system and up to the date of
liquidation of packing credit by shipment of goods by EOH. It shall be ensured
that no double financing of the same leg of the transaction is involved.
(8) The bank shall approach the ECGC for availing suitable cover in respect of
such advances.
(9) The scheme does not envisage extending credit by a sub-supplier to the EOH
/ manufacturer and thus, the payment to sub-suppliers shall be made against
submission of documents by LC opening bank treating the payment as EPC of
the EOH.


B.3
Rupee Pre-shipment Credit to Construction Contractors
250. The packing credit advances to the construction contractors to meet their initial
working capital requirements for execution of contracts abroad shall be made on
the basis of a firm contract secured from abroad, in a separate account, on an
undertaking obtained from them that the finance is required by them for incurring
preliminary expenses in connection with the execution of the contract e.g., for
transporting the necessary technical staff and purchase of consumable articles for
the purpose of executing the contract abroad, etc.
251. The advances shall be adjusted within 365 days from the date of advance by
negotiation of bills relating to the contract or by remittances received from abroad
in respect of the contract executed abroad.
252. The exporters undertaking project export contracts including export of services
may comply with the guidelines / instructions issued by Foreign Exchange
Department of the Reserve Bank from time to time.
B.4
Export of Services
253. Pre-shipment and post-shipment finance shall be provided to exporters of all
the tradable services covered under the General Agreement on Trade in Services
(GATS) and earning free foreign exchange as per the extant Foreign Trade Policy
of Government of India. All provisions of this circular shall apply mutatis mutandis
to export of services as they apply to export of goods unless otherwise specified.
254. The financing bank shall ensure that there is no double financing and the export
credit is liquidated with remittances from abroad. The bank shall take into account
the track record of the exporter / overseas counter party while sanctioning the
export credit.
255. The statement of export receivables from such service providers shall be tallied
with the statement of payables received from the overseas party.
256. The bank shall formulate their own parameters to finance the service exporters.
257. Exporters of services qualify for working capital export credit (pre and post
shipment) for consumables, wages, supplies etc. The bank shall ensure the
following:
(1) The proposal is a genuine case of export of services.


(2) The exporter is registered with the Electronic and software EPC or Services
EPC or with Federation of Indian Export Organisations, as applicable.
(3) There is an Export Contract for the export of the service.
(4) There is a time lag between the outlay of working capital expense and actual
receipt of payment from the service consumer or his principal abroad.
(5) There is a valid Working Capital gap i.e. service is provided first while the
payment is received some time after an invoice is raised.
(6) The bank shall ensure that there is no double financing / excess financing.
(7) The export credit granted does not exceed the foreign exchange earned less
the margins if any required, advance payment / credit received.
(8) Invoices are raised.
(9) Inward remittance is received in Foreign Exchange.
(10) Company shall raise the invoice as per the contract. Where payment is
received from overseas party, the service exporter shall utilize the funds to
repay the export credit availed of from the bank.
B.5
Pre-shipment Credit to Floriculture, Grapes and Other Agro-based
Products
258. Floriculture and other agro-based exports shall also qualify for export credit.
However, the bank shall ensure that the activities are not covered by direct /
indirect finance schemes of NABARD or any other agency.
259. Export credit shall not be extended for investments, such as, import of foreign
technology, equipment, land development etc. or any other item which cannot be
regarded as working capital.
B.6
Export Credit to Processors / Exporters - Agri-Export Zones
260. Government of India has set up Agri-Export Zones in the country to promote
Agri Exports. Agri- Export Oriented Units (processing) are set up in Agri- Export
zones as well as outside the zones and to promote such units, production and
processing are to be integrated. The producer has to enter into contract farming
with farmers and has to ensure supply of quality seeds, pesticides, micro-nutrients
and other material to the group of farmers from whom the exporter shall be
purchasing the products as raw material for production of the final products for
export. The Government, therefore, suggested that such export processing units


may be provided packing credit under the extant guidelines for the purpose of
procuring and supplying inputs to the farmers so that quality inputs are available
to them which in turn will ensure that only good quality crops are raised. The
exporters will be able to purchase / import such inputs in bulk, which will have the
advantages of economies of scale.
261. The bank shall treat the inputs supplied to farmers by exporters as raw material
for export and consider sanctioning the lines of credit / export credit to processors
/ exporters to cover the cost of such inputs required by farmers to cultivate such
crops to promote export of agri products. The processor units shall be able to effect
bulk purchases of the inputs and supply the same to the farmers as per a pre-
determined arrangement.
262. The bank shall ensure that the exporters have made the required arrangements
with the farmers and overseas buyers in respect of crops to be purchased and
products to be exported respectively. The financing bank shall also appraise the
projects in agri export zones and ensure that the tie-up arrangements are feasible
and projects would take off within a reasonable period of time.
263. The bank shall also monitor the end-use of funds, viz. distribution of the inputs
by the exporters to the farmers for raising the crops as per arrangements made by
the exporter / main processor units.
264. The bank shall ensure that the final products are exported by the processors /
exporters as per the terms and conditions of the sanction in order to liquidate the
pre-shipment credit as per extant instructions.
C. Rupee Post-Shipment Export Credit
C.1
Period of Realisation of Export Proceeds
265. The period of realization of export proceeds is determined by Foreign Exchange
Department of the Reserve Bank. The bank shall adhere to the direction issued
under Foreign Exchange Management Act, 1999, as amended from time to time.
C.2
Types of Post-shipment Credits
266. Post-shipment advance shall mainly take the form of:
(1) Export bills purchased / discounted / negotiated.
(2) Advances against bills for collection.


(3) Advances against duty drawback receivable from Government.
C.3
Liquidation of Post-shipment Credit
267. Post-shipment credit is to be liquidated by the proceeds of export bills received
from abroad in respect of goods exported / services rendered. Further, subject to
mutual agreement between the exporter and the banker it can also be repaid /
prepaid out of balances in Exchange Earners Foreign Currency Account (EEFC
A/C) as also from proceeds of any other unfinanced (collection) bills. Such
adjusted export bills shall however continue to be followed up for realization of the
export proceeds and shall continue to be reported in the Export Data Processing
and Monitoring System (EDPMS).
268. In order to reduce the cost to exporters (i.e. interest cost on overdue export
bills), exporters with overdue export bills may extinguish their overdue post
shipment rupee export credit from their rupee resources. However, the
corresponding Export Declaration Form will remain outstanding and the amount
shall be shown outstanding in EDPMS. The exporter’s liability for realisation shall
continue till the export bill is realised.
C.4
Period of Rupee Post-Shipment Export Credit
269. In the case of demand bills, the period of advance shall be the Normal Transit
Period (NTP) as specified by FEDAI.
270. In case of usance bills, credit shall be granted for a maximum duration of 365
days from date of shipment inclusive of Normal Transit Period (NTP) and grace
period, if any. However, the bank shall closely monitor the need for extending post-
shipment credit up to the permissible period of 365 days and it shall persuade the
exporters to realise the export proceeds within a shorter period.
C.5
Advances against Undrawn Balances on Export Bills
271. In respect of export of certain commodities where exporters are required to
draw the bills on the overseas buyer up to 90 to 98 per cent of the FOB value of
the contract, the residuary amount being 'undrawn balance' is payable by the
overseas buyer after satisfying himself about the quality / quantity of goods.


272. Payment of undrawn balance is contingent in nature. The bank shall consider
granting advances against undrawn balances based on their commercial
judgement and the track record of the buyer.
C.6
Advances against Retention Money
273. In the case of turnkey projects / construction contracts, progressive payments
are made by the overseas employer in respect of services segment of the contract,
retaining a small percentage of the progressive payments as retention money
which is payable after expiry of the stipulated period from the date of the
completion of the contract, subject to obtention of certificate(s) from the specified
authority.
274. Retention money may also be stipulated against the supply portion of turn-key
projects or sub-contracts. The bank shall treat retention money as a deferred
liability, given its contingent nature.
275. Advances shall not be granted against retention money relating to services
portion of the contract.
276. Exporters shall be advised to arrange, as far as possible, provision of suitable
guarantees, instead of retention money.
277. The bank shall consider, on a selective basis, granting of advances against
retention money relating to the supply portion of the contract taking into account,
among others, the size of the retention money accumulated, its impact on the liquid
funds position of the exporter and the past performance regarding the timely
receipt of retention money.
278. The payment of retention money shall be secured by LC or Bank Guarantee
where possible.
279. Where the retention money is payable after a period of one year from the date
of shipment, according to the terms of the contract and the corresponding advance
is extended for a period exceeding one year, it shall be treated as post-shipment
credit given on deferred payment terms exceeding one year, and the bank is free
to decide the rate of interest.


C.7
Export on Consignment Basis
280. Export on consignment basis lends scope for a lot of misuse in the matter of
repatriation of export proceeds. Therefore, export on consignment basis shall be
at par with exports on outright sale basis on cash terms in matters regarding the
rate of interest to be charged by banks on post-shipment credit.
281. Export of precious and semi-precious stones
Precious and semi-precious stones, etc. are exported mostly on consignment
basis and the exporters are not in a position to liquidate pre-shipment credit
account with remittances received from abroad within a period of 365 days from
the date of advance. The bank shall, therefore, adjust packing credit advances in
the case of consignment exports, as soon as export takes place, by transfer of the
outstanding balance to a special (post-shipment) account which in turn, shall be
adjusted as soon as the relative proceeds are received from abroad but not later
than 365 days from the date of export or such extended period as may be permitted
by Foreign Exchange Department of the Reserve Bank.
C.8
Export of Goods for Exhibition and Sale
282. The bank shall provide finance to exporters against goods sent for exhibition
and sale abroad in the normal course in the first instance, and after the sale is
completed, allow the benefit of rate of interest on such advances, if any, both at
the pre-shipment stage and at the post-shipment stage, up to the stipulated
periods, by way of a rebate. Such advances shall be given in separate accounts.
C.9
Post-shipment Advances against Duty Drawback Entitlements
283. The bank shall grant post-shipment advances to exporters against their duty
drawback entitlements and covered by ECGC guarantee as provisionally certified
by Customs Authorities pending final sanction and payment.
284. The advance against duty drawback receivables shall also be made available
to exporters against export promotion copy of the shipping bill containing the EGM
Number issued by the Customs Department. Where necessary, the financing bank
shall have its lien noted with the designated bank and arrangements shall be made
with the designated bank to transfer funds to the financing bank as and when duty
drawback is credited by the Customs.