Source: Reserve Bank of India · RBI/2011-12/71 · issued 01 Jul 2011 · ~2 min read
Quick answerRBI updated its master circular on bank finance to NBFCs, consolidating instructions up to June 30, 2011. Key change: removal of the credit ceiling linked to Net Owned Fund for registered NBFCs, allowing banks to extend need-based working capital and term loans based on their own loan policies.
What changed
The previous master circular from July 1, 2010 was superseded and updated with instructions issued up to June 30, 2011. The ceiling on bank credit linked to Net Owned Fund (NOF) of NBFCs was withdrawn for all NBFCs registered with RBI and engaged in asset financing, loan, factoring, or investment activities. Banks can now extend need-based working capital and term loans to such NBFCs, and also finance against second-hand assets financed by them.
What it means for you
Banks have greater operational freedom to lend to registered NBFCs without a rigid NOF-linked cap, enabling more flexible credit decisions based on individual loan policies. However, restrictions on financing certain activities (e.g., bridge loans, advances against shares as collateral, guarantees for fund placement) remain in force. Banks must ensure their loan policies are approved by their boards and comply with prudential exposure ceilings.
Historical instruction — do not use for current compliance. This is what was required at the time; it no longer reflects current RBI requirements. If no replacement rule is linked above, that only means none is recorded on our register yet — it does not prove no later applicable rule exists. Confirm on the official RBI source below.
What banks were required to do at the time
Update internal loan policies for NBFC financing to reflect removal of NOF-linked ceiling and incorporate board approval.
Ensure compliance with remaining restrictions: no bridge loans, no advances against shares as collateral to NBFCs, and no guarantees for placement of funds with NBFCs.
Monitor prudential exposure ceilings for NBFCs as per RBI guidelines and report accordingly.
Review and classify NBFC borrowers as registered or not requiring registration to apply correct financing rules.
repealed_by — Consolidation of Regulations — Withdrawal of circulars (28 Nov 2025)
Status change: withdrawn03 Aug 2026, 04:00 IST
Built from our lineage records — each fact carries its provenance; missing history simply is not shown (never guessed).
Does this circular remove all limits on bank finance to NBFCs?
No. It removes the ceiling linked to Net Owned Fund only for registered NBFCs in specified activities. Other restrictions like prohibitions on bridge loans, advances against shares, and guarantees for fund placement still apply, along with prudential exposure ceilings.
Can banks now finance NBFCs against second-hand assets?
Yes, the circular explicitly allows banks to extend finance to NBFCs against second-hand assets financed by them, based on the NBFC's experience in that area.
What should banks do if an NBFC is not registered with RBI?
Banks must refer to Section 3 of the circular for rules on financing NBFCs not requiring registration. Such NBFCs may have different eligibility criteria and restrictions.
📜 This document’s life story (4 recorded events, each backed by RBI’s own words)
Repealed byRBI/2025-26/100 — Consolidation of Regulations — Withdrawal of circulars (28 Nov 2025)
RBI’s words: “Official withdrawal register entry #1458: DBOD.BP.BC.No.20/21.04.172/2011-12 — "Master Circular - Bank Finance to Non-Banking Financial Companies (NBFCs)" dated July 1, 2011”
📜 Read the original circular — full text as issued by RBI
RBI/2011-12/71
DBOD.BP.BC.No.20 /21.04.172/2011-12
July 1, 2011
Chairman and Managing Directors /
Chief Executives of
All Scheduled Commercial Banks (Excluding RRBs)
Dear Sir,
Master Circular - Bank Finance to Non-Banking Financial Companies
(NBFCs)
Please refer to our Master Circular No.RBI/2010-11/51 DBOD.BP.BC.No.5/21.04.172/2010-11 dated July 1, 2010 on the captioned subject. The Master Circular has been suitably updated by incorporating instructions issued up to June 30, 2011 and has also been placed on the RBI web-site ( http://www.rbi.org.in ).
Yours faithfully,
(Deepak Singhal)
Chief General Manager-in-Charge
Master Circular on Bank Finance to Non-Banking Financial Companies
(NBFCs)
Purpose
To lay down the Reserve Bank of India's regulatory policy regarding financing of NBFCs by banks.
Classification
A statutory guideline issued under Section 35A of Banking Regulation Act, 1949
Previous guidelines superceded
Master circular No.RBI/2010-11/51 DBOD.BP.BC.No.5/21.04.172/2010-2011 dated July 1, 2010 on Bank Finance to Non-Banking Financial Companies (NBFCs).
Application
To all Scheduled Commercial Banks (except Regional Rural Banks).
Structure
1.
Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2011-12/71 · issued 01 Jul 2011. The plain-English explanation above is BankPulse’s own independent summary.
Discuss this circular with fellow bankers — reply, upvote what helps, report what doesn’t belong. Be professional; no client data. Views are the commenter’s own, not BankPulse’s.
BankPulse Compliance Evidence Pack — generated 03 Aug 2026 · status cross-checked against RBI’s official withdrawal register (refreshed weekly). Official RBI source: https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=6550&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.
Help us keep this accurate
Found an inaccuracy or have an improvement? Tell us. Every report is reviewed by our team before any change is made — nothing goes live unverified.
Public beta — plain-English informational summaries. Always verify against the official RBI source (circular number cited on every page) before making compliance, credit, treasury, audit, or operational decisions. · Join our WhatsApp channel ↗
BANKPULSE · FREE DAILY BRIEF
Get RBI updates for your role
Every important RBI update, decoded in plain English — for your career, exams & financial awareness.
We collect only your email, name and role, used solely to send your brief — never sold or shared. Withdraw anytime via the unsubscribe link in any email. Independent platform, not affiliated with the RBI. Information, not legal advice.
REPORT AN ERROR · BETA
Spotted an error? Earn 500 BankPulse Credits
Help us stay accurate. If your correction is verified true and approved by our founder, you earn 500 BankPulse Credits — redeemable when the platform monetises.
Reviewed by a human before any credit is awarded. We never change the site from crowd input without verification.
WANT A NEW FEATURE · BETA
What would make BankPulse more useful for you?
Tell us what to build next — a tool, a data view, a role page, anything. We read every suggestion.
Thank you — your ideas directly shape what we build.