The Reserve Bank of India (RBI) has issued the Small Finance Banks – Credit Facilities (Second Amendment) Directions, 2026, introducing a detailed regulatory framework for lending by Small Finance Banks (SFBs) to Infrastructure Investment Trusts (InvITs).
Under the revised framework, SFBs may lend only to listed InvITs registered and regulated by SEBI. Eligible InvITs must have at least 80% of their assets invested in completed and revenue-generating infrastructure projects that have generated positive operational cash flows for a minimum period of one year.
SFBs are required to establish Board-approved policies governing lending to InvITs, including appraisal standards, DSCR benchmarks, exposure limits, monitoring mechanisms, and end-use verification. Banks must ensure that financing is not used to support stressed SPVs and may refinance only completed projects that have commenced commercial operations.
The amendment prohibits bullet or balloon repayment structures, except for exposures through bonds, debentures, and commercial paper. Further, SFBs are expressly prohibited from extending finance to InvITs for acquiring equity in other entities.
To strengthen prudential safeguards, RBI has prescribed that the aggregate exposure of all banks to an InvIT and its underlying SPVs or holding companies shall not exceed 49% of the value of the InvIT’s assets, subject to compliance with SEBI-prescribed leverage limits.
The Directions also mandate comprehensive security coverage, including charges over underlying assets, assignment of cash flows and receivables, pledges of equity interests, and other enforceable security interests. Loan agreements must contain adequate lender protection measures such as escrow mechanisms, lender step-in rights, and restrictions on additional borrowing.
The amendment will come into effect from October 1, 2026, or earlier if adopted by a bank in its entirety.
