What changed
The Amendment Directions modify the Reserve Bank of India (Commercial Banks – Credit Facilities) Directions, 2025 by inserting new definitions for Acquisition Finance, Bridge Finance, Capital Market Intermediaries, Cash and cash equivalents, Control, Eligible Securities, Loan to Value, Margin, and Non-financial company. It also renumbers sub-paragraphs and substitutes the definition of Collateral security.
What it means for you
Banks must now classify and treat Acquisition Finance and Bridge Finance as distinct credit facilities with specific eligibility and repayment conditions. The expanded list of Eligible Securities for lending includes listed equities, government securities, rated debt, mutual fund units, ETFs, REITs, and InvITs, with margin and LTV requirements. This enhances clarity but requires system updates for compliance.
What you must do
- Update internal credit policy manuals to incorporate new definitions for Acquisition Finance, Bridge Finance, and Eligible Securities.
- Train credit and risk teams on the revised collateral and margin requirements, including the 10% haircut on units of overnight mutual funds (not all cash equivalents).
- Review existing loan portfolios to reclassify any facilities that now fall under Acquisition Finance or Bridge Finance.
- Ensure systems can capture and report Loan to Value (LTV) ratios for securities-backed lending.
- Align non-fund-based facility documentation with the new margin definition.
Who it affects
Commercial banks extending credit facilities, Credit risk and compliance departments, Loan origination and portfolio management teams, Borrowers seeking acquisition or bridge financing
What is the maximum tenure for Bridge Finance under the new directions?
Bridge Finance is defined as financing for an interim period not exceeding one year, where the borrower has a firm plan to repay via equity, debt, hybrid instruments, or divestiture.
Which securities are now eligible for bank finance under the revised directions?
Eligible Securities include listed Group-1 equity and preference shares, government securities, listed debt securities rated BBB or higher, mutual fund units with repurchase facility, ETFs (excluding commodity ETFs), REITs, and InvITs.
How is 'Control' defined for Acquisition Finance purposes?
Control has the same meaning as defined in Section 2(27) of the Companies Act, 2013, which typically refers to the ability to appoint majority directors or control management decisions.