RBI issues draft revised norms for non-fund based credit facilities

The Reserve Bank of India (RBI) today issued comprehensive draft norms regulating non-fund-based (NFB) credit limits such as letters of credit and guarantees across regulated entities (REs). The revision will also cover rules pertaining to partial credit enhancement (PCE) provided by REs to broaden the funding sources for infrastructure financing.

 

The credit policy of the REs should have provisions to issue NFB facilities that address aspects such as limits granted, credit appraisal, controls, fraud prevention, and the overall monitoring mechanism, the RBI said in draft norms released for feedback from stakeholders.

 

REs will issue an NFB facility only on behalf of a customer having a business relationship with them. The customer must be availing of a funded credit facility or a deposit facility from the RE.

 

The guarantees and counter-guarantees issued by an RE (guarantor) should be irrevocable. The contract should not have a clause allowing the guarantor to unilaterally cancel the same. REs should avoid undue concentration of unsecured guarantees and put in place suitable internal aggregate/individual ceilings for the issuance of unsecured guarantees.

 

Referring to REs providing partial credit enhancement (PCE), the RBI said they can issue PCE for bonds issued by corporates or special purpose vehicles (SPVs) for funding all types of projects. They can extend PCE cover to bonds issued by RBI-registered non-deposit-taking NBFCs with an asset size of Rs 1,000 crore and above. REs have been allowed to extend PCE to enhance the credit rating of the bonds, to enable corporates to access funds from the bond market on better terms, the RBI added.