RBI’s 2025 Framework on Non-Fund-Based Credit Facilities: Key Insights for NBFCs

Why This Matters to NBFCs

The Reserve Bank of India’s (RBI) latest notification— RBI (Non-Fund-Based Credit Facilities) Directions, 2025 — introduces a unified regulatory framework covering guarantees, letters of credit, and co-acceptances. These changes significantly influence how NBFCs handle credit risk, draft policies, and participafte in infrastructure financing.

Who Must Comply?

These Directions are applicable to the following regulated entities (REs):

• Commercial Banks (including Regional Rural Banks and Local Area Banks)
• Co-operative Banks (urban, state, central)
• All India Financial Institutions (AIFIs)
• NBFCs & Housing Finance Companies (HFCs) in the middle layer and above, but only for Partial Credit Enhancement (PCE)

Key Provisions at a Glance

1. Mandatory Policy Inclusion & Appraisal Standards

NBFCs must update their credit policies to cover non-fund-based facilities—ensuring strong appraisal, fraud prevention, monitoring, and controls at par with funded exposures.

2. Issuance Only to Existing Clients

Non-fund facilities can only be offered to clients who already maintain funded credit or deposits with the institution (derivatives are exceptions).

3. Guarantees Must Be Ironclad

• Irrevocable – no unilateral cancellation
• Unconditional – payout cannot be deferred
• Incontrovertible – immediate payment once invoked NBFCs must restrict unsecured guarantees via internal caps.

4. Partial Credit Enhancement (PCE)

NBFCs (middle layer & above) can now extend PCE for:

• Corporate/SPV Bonds
• Large NBFCs (₹1,000 crore+ assets)
• Municipal Bonds (new addition)
  The PCE cap is raised to 50% of bond value, compared to 20% in draft.

5. Capital & Exposure Safeguards

• Capital adequacy is calculated before enhancement of bond ratings.
• Per exposure: 1% of capital funds.
• Aggregate exposure: 20% of Tier-1 capital.

6. Transparency and Phased Adoption

• Older RBI circulars repealed.
• Digital guarantees encouraged.
• Effective from April 1, 2026 (with early adoption option).

Strategic Benefits for NBFCs and Infrastructure Financing

Practical Takeaways for NBFCs

Action Item	What to Do
Revise Credit Policy	Add non-fund-based instruments, monitoring, fraud controls.
Set Adequate Caps	Define borrower-wise & overall limits, especially for unsecured.
Consider PCE Strategy	Use PCE for eligible bonds within limits.
Upgrade Monitoring	Implement systems for guarantees & PCE tracking.
Ensure Disclosure Readiness	Update reporting & annual filings.
Observe Timeline	Comply by April 1, 2026 (early adoption allowed).

Final Thoughts

The 2025 Directions reframe the non-fund-based credit ecosystem. By aligning governance with opportunity, RBI has created scope for NBFCs to diversify funding and reinforce their role in infrastructure financing.

At Vexil Infotech, our 17+ years of NBFC software expertise ensure smooth integration of RBI-compliant systems—helping NBFCs stay compliant and grow strategically.

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