SFB Lending to InvITs: New RBI Norms

RBI/2026-27/112 DOR.CRE.REC.92/07.01.002/2026-27 June 10, 2026 Reserve Bank of India (Small Finance Banks – Credit Facilities) Second Amendment Directions, 2026 Please refer to the Reserve Bank of India (Small Finance Banks – Credit Facilities) Directions, 2025 (hereinafter referred to as ‘ Directions ’). 2. On a review, and in exercise of the powers conferred by Sections 21 and 35A of the Banking Regulation Act, 1949 and all other provisions / laws enabling the Reserve Bank of India in this regard, the Reserve Bank of India, being satisfied that it is necessary and expedient in public interest so to do, hereby, issues the Second Amendment Directions hereinafter specified. 3. The Second Amendment Directions modify the Directions as under: 3(1) In ‘Chapter IX – Infrastructure Financing’ of the Directions, paragraph 137A shall be substituted with the following paragraph, namely: “ 137A. Lending to InvITs (1) Banks shall be permitted to lend to InvITs which are registered with and regulated by SEBI. (2) General Conditions: (i) A bank shall put in place a Board approved policy on lending to InvITs, which shall cover, inter alia, appraisal mechanism, sanctioning conditions, underwriting norms, including metrics such as the debt service coverage ratio (DSCR) and their corresponding benchmark levels, internal limits for individual exposures as well as the aggregate portfolio, and monitoring mechanisms, including stipulation of appropriate covenants. As the valuations of InvITs are primarily based on projected cash flows, a bank shall satisfy itself regarding the valuation methodology and the assumptions used for such valuations vis-à-vis bank’s own policy and relevant regulatory standards. (ii) Lending banks shall ensure that the applicable legal provisions in respect of InvITs neither constrain the borrowing InvIT’s eligibility to borrow, nor restrict the banks’ ability to enforce their security interest and lender’s rights. Specifically, in cases where the InvIT is established as a trust, the banks shall establish that the trust deed of the borrowing InvIT has relevant provisions for borrowings in the manner that is under consideration by the bank. (iii) A bank shall strictly monitor the end use of funds lent to InvITs to ensure that this route is not being used to finance activities which are not directly permitted to be financed under the extant regulations. (iv) A bank may lend only to an InvIT which is listed. Explanation: (1) Listed InvITs shall include InvITs under sub-regulations (2) and (4) of regulation 14 of the Securities and Exchange Board of India (Infrastructure Investment Trusts) Regulations, 2014. Provided that in all cases, not less than 80 per cent of the value of the InvIT assets is invested in completed and revenue generating infrastructure projects and such assets have been generating positive cashflows from operations for a period of not less than one year. (2) The term ‘completed and revenue generating project’ shall have the same meaning as assigned under the Securities and Exchange Board of India (Infrastructure Investment Trusts) Regulations, 2014, as amended from time to time. (v) The bank shall ensure that lending to an InvIT is not used to fund its SPVs having existing loans from REs and which are facing financial difficulty, as defined in the Reserve Bank of India (Small Finance Banks – Resolution of Stressed Assets) Directions, 2025 . (vi) If the purpose of bank financing is refinancing of existing credit facilities of SPVs, then such refinancing shall be undertaken only in respect of credit facilities towards completed projects that have achieved commencement of commercial operations. (vii) The credit facilities extended by a bank to an InvIT shall not involve bullet or ballooning repayment structures, so as to ensure that a disproportionate portion of principal repayments is not concentrated in the terminal phase of the loan tenure. However, this shall not preclude structuring the repayment schedule in line with projected cash flows. Provided that, the above restriction shall not be applicable to exposures of a bank to an InvIT through its investment portfolio in the form of bonds, debentures, and commercial paper. (viii) Bank shall not extend finance to InvITs for acquiring equity of other entities. (3) Prudential Ceiling on Leverage: (i) 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. (ii) Overall leverage of the borrowing InvIT shall be within the prudential ceiling prescribed by SEBI, or such lower limit as may be decided by the bank’s Board. (iii) The aggregate exposure of all banks to a borrowing InvIT, together with its underlying SPVs / holding companies, shall not exceed 49 per cent of the value of the InvIT’s assets, or such lower limit as may be decided by the bank’s Board. Explanation: (a) ‘Exposure’ for the above purpose shall include outstanding fund-based credit facilities, including investments in the form of bonds, debentures, and commercial paper, and credit equivalent of non-fund-based facilities, extended by banks to an InvIT. (b) The ’value of InvIT assets’ shall have the same meaning as assigned under the Securities and Exchange Board of India (Infrastructure Investment Trusts) Regulations, 2014, as amended from time to time, and shall be considered on a gross basis, i.e., without netting cash and cash equivalents. (c) The value of the InvIT assets shall be based on (1) the full valuation as at the end of the latest financial year ending March 31, or (2) half yearly valuation as at the end of the latest half-year ending on September 30, as prescribed under the Securities and Exchange Board of India (Infrastructure Investment Trusts) Regulations, 2014, as amended from time to time, whichever is later. (4) Security Coverage (i) Bank financing to an InvIT shall be fully secured inter alia by charge over the underlying immovable property, an assignment of cash flows and receivables, a pledge of equity interests held by the InvIT in the relevant SPV, and such other legally enforceable security interests as may be applicable. Where a charge is created over immovable property, it shall invariably be in the nature of an exclusive first charge, or a first pari passu charge where multiple lenders are involved, governed by an inter-creditor agreement or any other arrangement amongst such lenders. (ii) The contractual provisions of the loan agreement shall provide for a high degree of protection for an InvIT lender, which shall include, but not be limited to, provisions of an escrow account for ringfencing the project cash flows; mitigation of risk for InvIT lenders in case of early termination of the underlying project (e.g., step-in rights for the lenders, minimum termination payments, etc.); and restrictions on the borrower entity and underlying SPVs from acting to the detriment of the creditors, e.g., restrictions on issuing additional debt without the consent of existing creditors. 4. These Directions shall come into force from October 1, 2026 , or an earlier date when adopted by a bank in entirety. With a view to ensuring non-disruptive implementation of amendments issued vide these Amendment Directions, a bank is permitted to let its existing loans to InvITs which are not in conformity with these amendments as on the effective date of these Amendment Directions to run-off till maturity. However, the bank shall not review / renew such loans / limits after their expiry on same or different terms, even if such renewal is provided in the contract, or enhance the limits sanctioned prior to the date of these Amendment Directions coming into force, unless they are in compliance with amendments issued vide these Amendment Directions. (Vaibhav Chaturvedi) Chief General Manager

Reproduced for reference with acknowledgment — Source: Reserve Bank of India · RBI/2026-27/112 · issued 10 Jun 2026. The plain-English explanation above is BankPulse’s own independent summary.

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