RBI proposes new guidelines to harmonise non-fund-based facilities and revise partial credit enhancement rules

RBI Governor Sanjay Malhotra

The Reserve Bank of India (RBI) on April 9 announced framework to "harmonise regulations governing non-fund-based facilities across regulated entities".

Addressing the press post Monetary Policy Committee meeting, RBI Governor Sanjay Malhotra said, alongside this, the central bank also plans to revise instructions related to partial credit enhancement (PCE) by regulated entities, fulfilling a key budget announcement made by Finance Minister Nirmala Sitharaman earlier this year.

Non-fund-based facilities, such as letters of credit and bank guarantees, play a vital role in facilitating trade and infrastructure projects without direct lending.

However, inconsistencies in regulations across different regulated entities, including banks and non-banking financial companies (NBFCs), have prompted the RBI to propose a unified approach.

Similarly, partial credit enhancement, a mechanism where banks or other entities provide a limited guarantee to improve the credit rating of bonds, was highlighted in the Union Budget 2025-26.

The Finance Minister had emphasised the role of the National Bank for Financing Infrastructure and Development (NaBFID) in setting up a PCE facility to support infrastructure bonds, a commitment the RBI is now acting upon.