Alerts & Updates 2nd Apr 2025
| Summary of the RBI Master Circular on Bank Finance to Non-Banking Financial Companies |
The Reserve Bank of India has always played a key role in shaping how banks engage with the broader financial ecosystem, especially with NBFCs which, as we know, form an important part of India’s credit delivery system. With effect from April 1, 2025, the RBI has brought out a Master Circular on Bank Finance to Non-Banking Financial Companies (NBFCs), consolidating and updating various instructions issued till March 31, 2025.
This circular is particularly significant because it clearly outlines the types of NBFCs that can receive bank finance, the kinds of activities banks are not allowed to finance, and also lays down exposure limits and prudential norms to be followed. Whether it’s NBFCs involved in infrastructure lending, factoring, gold loans, or investment activities — the circular provides a detailed regulatory framework banks must follow when extending credit to these entities.
The objective is to ensure that while banks continue to support NBFCs in meeting credit demand, they do so responsibly — with proper risk assessment, transparency, and within defined regulatory boundaries.
Below is a brief summary of the key features and regulatory highlights of this updated Master Circular. For a more detailed understanding, readers are encouraged to refer to the original RBI document.
Summary of the RBI Master Circular on Bank Finance to Non-Banking Financial Companies (NBFCs) effective from April 1, 2025[1], highlighting key regulatory features:
| Applicability: Applies to all Scheduled Commercial Banks (excluding RRBs).
Key Features of the Updated Circular
Banks cannot finance NBFCs for: – Rediscounting bills (with limited exceptions). – Investments in shares/debentures. – Unsecured loans/ICDs to other companies. – Lending for IPO subscriptions or secondary market purchases. – Loans to subsidiaries/group companies.
– No bridge loans or interim finance. – No lending against shares/debentures as collateral to NBFCs. – Restrictions on guarantees for placement of funds with NBFCs.
– Single NBFC: Max 20% of bank’s Tier I capital. – Group NBFCs: Max 25% of Tier I capital. – NBFCs lending against gold: Limited to 7.5% of capital funds (extendable to 12.5% if for infrastructure). – Banks must set internal caps on exposure to NBFCs and gold-loan focused NBFCs.
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Note: This summary covers only the main updates. Readers are encouraged to refer to the full RBI Circular for details and operational instructions
We trust you will find this an interesting read. For any queries or comments on this update, please feel free to contact us at insights@elp-in.com or write to our authors:
Mukesh Chand, Senior Counsel – Email – mukeshchand@elp-in.com
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