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RBI Tightens Norms on Unsecured Advances Disclosure

Current · Source: Reserve Bank of India · RBI/2008-09/434 · issued 17 Apr 2009 · ~2 min read
Quick answerRBI now requires banks to treat project-related rights, licenses, and authorizations as intangible, not tangible, security. Such advances must be reported as unsecured in Schedule 9, with separate disclosure of intangible collateral value in Notes to Accounts, effective FY 2009-10.
The rule, in the simplest words
How it plays out — a real example

A project finance officer in Mumbai, named Rohan, reviews a loan for a solar plant. He sees that the loan is secured only by the plant’s operating licence. Following the new rule, he classifies it as unsecured in the balance sheet and writes the loan amount and licence value in the Notes to Accounts, ensuring transparency for investors.

What changed

RBI clarified that rights, licenses, and authorizations charged as collateral for project financing (including infrastructure) are not tangible security. Banks must now classify these advances as unsecured in Schedule 9 of their balance sheets. Additionally, banks must disclose the total amount of advances secured by such intangible collateral and their estimated value in a separate 'Notes to Accounts' heading.

What it means for you

This change increases transparency by ensuring that loans backed only by intangible assets like project rights are correctly reported as unsecured. For banks, it may increase reported unsecured exposure, potentially impacting capital adequacy calculations and investor perception. Lenders must update their classification and disclosure processes to comply from FY 2009-10.

What you must do

Who it affects

All Scheduled Commercial Banks (including Local Area Banks), Credit risk and reporting departments, Project and infrastructure finance teams

❓ Common questions

What types of collateral are now considered intangible under this circular?

Rights, licenses, authorizations, and similar charges taken as collateral for projects (including infrastructure) are now treated as intangible security, not tangible.

How should banks disclose advances backed by intangible collateral?

Banks must show the total amount of such advances and their estimated value under a separate head in 'Notes to Accounts' to differentiate them from fully unsecured loans.

From when is this circular applicable?

The circular is applicable from the financial year 2009-10 onwards.

📜 Read the original circular — full text as issued by RBI
a) For determining the amount of unsecured advances for reflecting in schedule 9 of the published balance sheet, the rights, licenses, authorisations, etc., charged to the banks as collateral in respect of projects (including infrastructure projects) financed by them, should not be reckoned as tangible security. Hence such advances shall be reckoned as unsecured. b) Banks should also disclose the total amount of advances for which intangible securities such as charge over the rights, licenses, authority, etc. has been taken as also the estimated value of such intangible collateral. The disclosure may be made under a separate head in “Notes to Accounts”. This would differentiate such loans from other entirely unsecured loans.
Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2008-09/434 · issued 17 Apr 2009. The plain-English explanation above is BankPulse’s own independent summary.
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Who does what — compliance checklist
💰 Credit
  • Reclassify all advances where collateral is only rights, licenses, or authorizations as unsecured in Schedule 9.
💻 IT / Systems
  • Update internal systems and reporting templates to reflect the new classification from FY 2009-10.
📜 Compliance
  • Create a separate disclosure in 'Notes to Accounts' for total advances with intangible security and their estimated value.
  • Train credit and reporting teams on the distinction between tangible and intangible security for project loans.
Grouped from the action items above — a single circular may involve more than one team.
Worked example & action-note template

Example: if you are a Credit Manager at a bank this circular applies to (All Scheduled Commercial Banks (including Local Area Banks), Credit risk and reporting departments, Project and infrastructure finance teams), your first concrete step on “RBI Tightens Norms on Unsecured Advances Disclosure” is: “Reclassify all advances where collateral is only rights, licenses, or authorizations as unsecured in Schedule 9.” (RBI issued this 17 Apr 2009).

  1. Circular: RBI/2008-09/434 -- RBI Tightens Norms on Unsecured Advances Disclosure
  2. Issued: 17 Apr 2009
  3. Action required: Reclassify all advances where collateral is only rights, licenses, or authorizations as unsecured in Schedule 9.
  4. Action required: Create a separate disclosure in 'Notes to Accounts' for total advances with intangible security and their estimated value.
  5. Action required: Update internal systems and reporting templates to reflect the new classification from FY 2009-10.
  6. Action required: Train credit and reporting teams on the distinction between tangible and intangible security for project loans.
  7. Owner: ____________ Target date: ____________
  8. Board/committee approval needed? Y / N
  9. Evidence filed in compliance register on: ____________
Built only from this circular’s own published fields — not legal advice; always confirm against the official RBI source.

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Official RBI source: https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=4929&Mode=0 — Plain-English summary by BankPulse (bankpulse.ai), reviewed by our expert reviewer, CA Amit Jain. Independent platform, not affiliated with the Reserve Bank of India; is our own plain-English paraphrase, not RBI’s original wording.
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