Financiers are now permitted to avail credit guarantee cover (via NCGTC) for exposures on TReDS. This is a significant step towards de-risking receivables financing and encouraging wider participation by lenders. Notably, RBI had already expanded the ecosystem in 2023 by permitting insurers as participants to provide credit insurance cover for such exposures.
🔹 Simplified onboarding for MSMEs:
In line with the Governor’s statement, the draft seeks to streamline MSME onboarding by removing the earlier requirement on due diligence of the MSME prior to onboarding.
🔹 Mandatory registration of assignment with CERSAI:
The draft mandates (earlier recommended) registration of assignment of receivables with CERSAI, strengthening legal enforceability and improving transparency of receivables financing transactions.
🔹Annual, monthly and event-based reporting requirements:
Annually (by 30 Sept): submit audited net-worth certificate and IS/Cyber Security Audit report. Monthly (by 7th): submit TReDS statistics. Event-based: report any change in Board along with director declaration/undertaking.
🔹Minimum net worth of Rs. 25 Crores for entities setting up a TReDS
The draft requires TReDS entities to maintain a minimum net worth of ₹25 crore (replacing the earlier paid-up capital requirement), duly certified by the statutory auditor. Existing players must meet this requirement by 31 March 2027.
RBI continues its drive of regulatory reforms for the banking sector, with the recent one being the amendment proposed in the governance directions applicable to commercial banks i.e. Draft Reserve Bank of India (Commercial Banks – Governance) Amendment Directions, 2026 (Draft Directions) relating to policy and non-policy matters placed before the Board for approval, review, information etc. proposed to be made applicable from September 1, 2026. As indicated in RBI’s Statement on Developmental and Regulatory Policies, RBI has undertaken comprehensive review and rationalization of all earlier instructions in an endeavor to enable Boards to utilize its time effectively, and to facilitate a more focused and qualitative engagement on strategy and risk governance.
While, the Draft Directions provide a compilation of matters to be placed before the Board and those that can be delegated to a specific committee or any committee of board/ management, it also provides the principles to be considered by the board while delegating the matters thereby ensuring the adequate oversight of the board on delegated matters. The amendment would primarily affect the manner in which information is placed before the board of banks, manner and extent of delegation of their powers to committees of board and/or management and reporting requirements for such matters.
The Draft Directions are applicable to both public sector banks and private sector banks.
In this piece, the authors analyse the proposed amendment, impact and indicate the likely actionables for Banks if the amendment is notified as is.
The Role of the Board
The Board of a Bank is expected to majorly focus on overseeing the risk profile of the Bank, monitoring the integrity of its business and control mechanisms, ensuring the expert management, and maximising the interests of its stakeholders. The Board always had the power to delegate certain items to management and board committees, in some cases by way of express provisions in RBI directions, guidelines. But at the same time, it must set and enforce clear lines of responsibility and accountability for itself as well as the senior management.
The Draft Directions draw a clear line between the matters to be dealt by the Board and the matters which can be delegated to committees with only material matters being placed before the Board. Further, a principle based approach is provided for the manner in which information is placed before the Board.
Principle Based Approach for matters to be placed before the Board
The objective of these principles is for the Board to consciously examine the areas where it devotes its valuable time and expertise. The principles require the Board to document express guidelines on the manner in which information is being placed before it.
The board is required to clearly articulate the matters reserved for its approval or to be brought to its notice for information or reporting, based on applicable laws and define the nature, level of detail and frequency of information required from the management. To optimize the time of the Board for real value addition, the chairperson of the Board shall have the primary responsibility of setting the agenda of the meeting.
The matters being placed before it or the Board committees, sub-committees or senior management must be reviewed periodically. This would enable the Board to examine and revoke delegation or further delegate responsibilities wherever required. The review must be detailed enough to include the timelines for circulation of agenda items, adequacy of information captured in the agenda, time allotted for important matters, etc.
The Powers of Delegation
The RBI (Commercial Banks – Governance) Directions, 2025 (existing Directions) provide for delegation of specific items viz. reviews dealing with various performance areas, monitoring of the exposures (both credit and investment) of the bank, review of the adequacy of the risk management process and upgradation thereof, internal control system, ensuring compliance with the statutory / regulatory framework, etc. to a Committee of Board. For ease of reference, the Draft Directions compile as well as draw a clear line between the matters to be dealt by the Board and the matters which can be delegated to committees with only material matters being placed before the Board.
This distinction would enable the Board to focus on its key areas of responsibility – risk and strategy governance and strengthens its powers of oversight over the risk management system, exposures to related entities and conformity with corporate governance standards[1].
Policy Matters
A list of policies which must be placed before the Board for its approval and which may be delegated for review are prescribed in Appendix-I of the Draft Directions. The Board is responsible for approving the policies at the time of framing and only periodical review is to be delegated to the committees. In case of any ‘material amendments’ (to be defined by the Board), the Board’s approval must be sought. Thus, the Board does not lose complete oversight.
Along with a major consolidating exercise, the Draft Directions also indicate policies where delegation is expressly allowed, even where the underlying directions/ guidelines did not expressly provide for the same. Accordingly, the amendments are enabling in nature in certain cases, as illustrated below:
Where the bank intends to function as a Professional Clearing Member in commodity derivatives, policy for-Specification of risk control measures and prudential norms for exposure limits for each trading member;Governing the bank’s exposure to trading members, ensuring consistency with the overall risk appetite and regulatory requirements.
Policy on- Courses / certifications required for specialised areas of operationsList of sensitive positions to be covered under mandatory leave requirements
Any Committee to which powers have been delegated by the Board.
Matters other than policy
Matters other than policies which must be placed before the Board for its approval, review or information are given in Appendix-II of Draft Directions. While several matters must be mandatorily taken up by the Board, the Board shall have the discretion to delegate certain matters even where the underlying directions/ guidelines did not expressly provide for the same. Accordingly, the amendments are enabling in nature in certain cases – for e.g. matters relating to risk assessment methodology for RBIA, Annual Audit Plan, analysis of incidents of operational risk failures & their impact to audit committee, matters relating to investment portfolio to risk management committee.
The Draft Directions also provide for discontinuation of about 6 matters at the discretion of the Board. In certain cases, such as ATM transactions including failed transactions and penalties paid, certain details are to be placed before the Board. The details must be forwarded to RBI along with the Board’s observations. The Draft Directions proposes that such review may be discontinued at the discretion of the Board. Accordingly, amendments would be required in the underlying laws as well. Similarly in case of matters relating to loans to stockbrokers and market makers where the provisions mandate half-yearly review of the aggregate portfolio, its quality and performance by the Board, the board will have to exercise its discretion depending on the extent of exposure.
Proposed Omissions
Certain provisions of the existing Directions proposed to be omitted are as follows:
Para
Provision deals with
VKC Remarks
14
The Board should focus on the 7 themes of: Business Strategy, Risk, Financial Reports and their integrity, Compliance, Customer Protection, Financial Inclusion, Human Resources
Instead of specifying the themes, the proposed amendment indicates that the ultimate responsibility for the bank’s performance, conduct and control rests with the Board and that it needs to ensure that sufficient time is dedicated to strategy and risk governance.
16
Review of action taken on points arising from earlier meetings till the satisfaction of the board
Broader discretion provided to Banks to decide internal processes and articulate matters requiring its approval or to be brought for reporting or noting of information.
17
Placing regulatory communication from RBI and the government along with supplementary information before the Board
18
Delegation expressly permitted for: Reviews dealing with various performance areas and only a summary on each of the reviews may be put up to the Board at periodic intervals; Monitoring of the exposures (both credit and investment) of the bank; Review of the adequacy of the risk management process and upgradation thereof; Internal control system; Ensuring compliance with the statutory / regulatory framework, etc.
A prescriptive list of permitted delegation has been specified by RBI, refer discussion below.
19
Procedural technicalities relating to placing a summary of key observations by directors at the next board meeting and confirmation by directors for their observations, dissents etc.
Broader discretion provided to Banks to decide internal processes.
Conclusion
The Draft Directions propose to optimise the time of the Board of Banks to focus on strategic and governance matters instead of operational matters. While this measure aims to boost the productivity of Banks and bring ease of doing business in the short term, once notified, several actionables would arise for Banks. Banks must examine their current decision making structure, at the level of the Board and delegation to committees, to understand how they would align it with the proposed amendments.
[1] Para 15 of the existing directions retained as para 11A of the Draft Directions.
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Volumes of securitisation (which, of course, have always included bilateral assignments or so-called DA transactions) fell by 6% in FY 26, if the origination volume by Reliance group entities in the first half were to be excluded. However, the market has shown more originator diversity, with an increasing share of smaller issuers, including those tasting the market for the first time.
The dip in volumes is because of the larger issuers who were prominently absent or subdued – Shriram Finance as the largest issuer having raised on-balance sheet liquidity, and banking companies. However, the share of gold loans went up sharply, largely due to the sharp increase in gold prices and gold lending, Microfinance companies went more for securitisation, rather than direct assignment transactions.
For anyone studying the Indian securitisation market, it is important to note the following:
Reported volumes in India include direct assignments, which, in international parlance, are not “securitisation” (pure bilateral loan sales). However, in India, traditionally, DA has been a close and quick proxy for securitisation, and hence, mostly included. In FY 26, the split of DA/PTC volumes shows PTC transactions having gained in proportion. One rating agency1 reports an increase of PTC volume percentage from 54% to 60%; another one2 shows the increase from 48% to 52%.
Indian transactions mostly show LAP transactions as a part of MBS, whereas what the world reports as RMBS is quite small in India. Last year, there was a prominent transaction by LIC Housing Finance, through the NHB-promoted RDCL. There was no RDCL issuance this year. It seems that RMBS volume was either too small to be reportable, or was completely absent.
Microfinance sector has been under some stress in the recent past; however, MFIs have increasingly resorted to PTC issuances, with small deal sizes. Some deal sizes are even below 100 crores. This is indicating greater diversity of issuers, and of course, yields and ratings.
The market also seems to be showing larger acceptance for lower rated securities i.e., BBB+.
Overall, in a stressful global scenario, securitisation has stood firm. Non financial sector entities have shown increasing willingness to tap the market. Of course, SEBI regulations have to be more enabling.
Below, we give a detailed overview of the securitisation market, including a discussion on the asset classes.
NBFCs vs Banks
Securitisation volumes have been largely driven by NBFCs, which recorded a 30% year-on-year increase in value. In contrast, originations by banks have declined significantly.
Recent Securitisation Structures in India – A Mix of Tradition and Innovation
Among asset classes, vehicle loans (including commercial vehicles and two-wheelers) accounted for 50% of securitisation volumes (vs 47% in the corresponding period last fiscal). Mortgage-backed loans accounted for about 28% of securitisation volume (vs 37% in the last FY).
Vehicle loan-backed securitisations dominated the market, both in terms of number of deals and total value, reaffirming the sector’s strong position. This is consistent with the growth trend in vehicle loan originations during FY 25.
In addition to vehicle loans, originators also securitised receivables from a diverse set of underlying asset classes during Q4, including:
Microfinance Loans
Secured Business Loans
Unsecured Business Loans
Home Loans
Unsecured Personal Loans
Gold Loans
The continued diversification in underlying asset classes highlights the evolving maturity of India’s securitisation market and growing investor appetite across segments. The break-up of securitisation volumes across various asset classes have been presented below:
Securitisation of Vehicle Loans
The issuance volume for vehicle loan securitisation during FY26 was approximately ₹1.26 lakh crores. Most of the transactions were structured as single-tranche issuances. However, a few exceptions featured more layered structures comprising senior and equity tranches, or senior, mezzanine, and equity tranches.
In terms of credit ratings, the tranches were rated between A- and AAA. Notably, the senior tranches in the majority of transactions received high investment-grade ratings, typically falling within the AA+ to AAA range. This indicates strong investor confidence and reflects the underlying credit quality of the asset pools, supported by adequate credit enhancement mechanisms.
Further, replenishing structures were also observed commonly during FY26. These variations indicate growing sophistication in transaction structuring within the vehicle loan securitisation space, aimed at catering to different investor preferences, improving credit protection, and aligning with originator risk appetite. As the market matures, further innovation in structuring and risk mitigation features can be expected.
In terms of credit enhancements, most vehicle loan securitisation transactions during the last quarter of FY26 featured: cash collateral (CC) and overcollateralisation (OC), with the Excess Interest Spread (EIS) serving as the first layer of loss absorption.
Securitisation of Microfinance Loans
During FY26, the MFI sector has seen a revival after a period of stress during FY 25 and FY 24. This has been due to better credit underwriting of lenders, improving performance trends and granular pool characteristics. Further, after a period of stress, the lenders relied on time-tested borrowers rather than exploring new markets leading to higher average ticket size of loans. This has led to a growth in the volumes of securitisation of microfinance loans during FY26. The PTC issuance volume of microfinance institutions increased to 14% of total PTC issuance in FY26 from 6% of total PTC issuances in FY25. Most of the transactions were structured as a single tranche securitisation.
Further, most microfinance loan securitisation transactions during the quarter featured credit enhancement through two primary mechanisms: CC and overcollateralisation OC, with the EIS serving as the first layer of loss absorption.
Securitisation of pool of loans backed by Home Loans & LAP
The volume of mortgage backed securitisation has been low both in terms of number as well as in terms of amount of issuance. As compared to FY25, the total MBS issuances dropped to 28% of total issuance from 37%. The transactions featured a common waterfall matrix and had received an overall rating of AAA.
In terms of credit enhancement, CC and OC has been provided as a credit enhancement with the EIS serving as the first layer of loss absorption.
Securitisation of Gold Loans
Gold loan securitisation volumes in H2FY26 stood at approximately ₹18,500 crore, significantly higher than the ₹5,000 crore recorded for the whole of FY25.
The jump in gold lending securitisation may be due to increase in gold prices and resultant increase in the value of the collateral. As a result of this valuation spike, average ticket sizes have increased, indicating that as gold valuations rise, consumers are leveraging higher-value loans to meet their financing needs. Another reason for the increased origination may be removal of LTV restriction in case of income generating gold loans.
Securitisation of Unsecured Loans
As per rating rationales published by Care the securitisation volumes of unsecured loans (both personal and business) increased during FY26. Investors in unsecured loan transactions, are preferring the PTC route, due to the support provided by external enhancement. CC and OC have also been provided as a credit enhancement with the EIS serving as the first layer of loss absorption.
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RBI has vide its Press Releases – Reserve Bank of India proposed to review methodology for identification of NBFCs in Upper Layer. The key changes are as follows:
Annual Classification: RBI shall conduct an annual identification process for classification of NBFCs in the Upper Layer.
It may be noted that NBFCs belonging to the banking group are also required to comply with the compliance requirements applicable to Upper Layer NBFCs (except the listing requirement). Our article on compliances to be followed by such NBFCs in the banking group can be seen here.
Criteria for classification: The current two-step approach (top ten by asset size and parametric scoring) will be replaced by a simple, absolute asset size criterion. The proposed asset size threshold for an NBFC to be classified as UL is ₹1,00,000 crore and above, as per the latest audited balance sheet (this limit is subject to review every 5 years).
A crucial question that arises here is whether the consolidation criteria (multiple NBFCs in the group) be applicable in this case as well to determine the asset size? Though as per prudence, it should apply, to avoid surpassing the regulatory intent, however, the same is specifically not applicable as per the SBR Directions (refer para 21) .
Inclusion of Government-owned NBFCs: Eligible Government-owned NBFCs will now also be considered for inclusion in Upper Layer, based on the revised asset size criteria. Previously, these were placed only in the Base or Middle Layer.
It may be noted that the category of NBFC is not a pre-condition, hence, the list of UL NBFCs would include not just NBFC-ICCs but also HFCs, CICs, deposit taking NBFCs, and not even Govt. NBFCs
Provision for Credit Risk Transfer: All NBFC-UL will be allowed to use State Government guarantees as a credit risk transfer instrument without any specific limit, provided they meet the prescribed conditions.
Implications of NBFC-UL Classification
Once the proposed criteria are implemented and the new list of Upper Layer NBFCs is notified by the RBI, entities classified as NBFC-UL will face certain immediate implications, in addition to specific corporate governance norms. The central point of discussion is how these requirements might impact the growth plans of large NBFCs.
CET 1 requirement: NBFC-UL are required to maintain Common Equity Tier 1 capital of at least 9% of Risk Weighted Assets.
While CET 1 is currently manageable for most existing UL entities, aggressive growth plans could potentially make this a constraining factor for larger NBFCs newly classified as UL.
Leverage Restriction: In addition to CRAR, NBFC-UL shall also be subject to leverage requirements to ensure that their growth is supported by adequate capital, among other factors. Also, NBFC-UL shall be required to hold differential provisioning towards different classes of standard assets.
Leverage ratio would have been an issue if the entity was engaged in derivatives transactions. However, most of the NBFCs in India are not very active in this space.
Exposure Framework: NBFC-ULs are required to adhere to the Large Exposures Framework. Furthermore, their Board must determine internal exposure limits for important sectors, including exposure to the NBFC sector, in addition to limits on internal exposures to Sensitive Sector Entities (SSEs).
The applicability of the large exposure framework may be a real concern. Large exposure framework looks at economic interdependence as the basis of classification into group risk. There is an absolute limit that the single party exposure cannot be more than 20% of Tier 1 capital (including quarterly audited profits) and 25% in case of a group of counterparties.
Listing Requirement: NBFC-ULs must be mandatorily listed within three years of being identified and notified as such. Unlisted NBFC-ULs shall be required to make the necessary arrangements for listing within this three-year period.
CICs not accessing public funds: Under the CIC Directions, those CICs that don’t have access to public funds, irrespective of the asset size, are eligible to be classified as an unregistered CIC. Accordingly, such CICs should not be classified in the upper layer even if they breach the asset size criteria.
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Following the consolidation action undertaken by the Department of Regulations (DoR) in November 2025, the Department of Supervision has now undertaken a comprehensive exercise to consolidate existing standalone circulars issued by RBI in supervisory domain into function-wise, entity-specific consolidated Directions for easier navigation and application. The supervisory instructions have been organised into distinct Directions for each type of RE on each supervisory function.
Compliance Function– Prescribing the guidelines for compliance risk assessment and appointment of the chief compliance officer.
Concurrent Audit– This is specifically applicable in case of banks and not NBFCs. In case of NBFCs, the Auditor’s Report Directions lays down the disclosures and reporting by auditors of NBFCs
Cybersecurity, Technology: Risk, Resilience and Assurance- Provides comprehensive guidelines on IT governance and policy, information security and cybersecurity, IT operations, information system audit, BCP, disaster recovery and IT services outsourcing.
Digital Payments Security Controls- Provides guidelines for credit-card issuing NBFCs on governance and security risk mitigation, authentication framework, fraud risk management, reconciliation mechanism, grievance redressal mechanism, web application, mobile application and card payment security controls.
Fraud Risk Management- Lays down the process for identification and classification of fraudulent borrowers and the implementation of early warning signals (EWS)
Internal Audit Function or Risk Based Internal Audit- Provides for harmonised Internal Audit systems and processes to be implemented by larger NBFCs (Deposit Taking and entities having asset size above ₹5000 cr)
Statutory Audit- Lays down the regulations for appointment of statutory auditors, their eligibility criteria, intimation and reporting to the RBI, etc.
Supervisory Returns- All regulatory filings and submission of returns to the RBI
Miscellaneous- Consolidates the instructions for implementation of CFSS, nomination facility to be provided in case of deposit accounts, fair lending practices for charging of interest and the Prompt Corrective Action Framework.
A detailed analysis of the drafts for NBFCs has been covered here-
No major changes.It has been clarified that in the absence of a new product committee, the CCO shall be required to evaluate all new products before they are launched.
CICs were not required to comply requirements of IT Governance Framework, the draft IT Directions now mandate CICs to comply with the IT baseline technology standardsFor NBFCs with asset size below ₹ 500 cr-Chapter IV of IT Directions:Use of public key infrastructure (PKI) for ensuring confidentiality of data, access control, data integrity has been made mandatory (earlier recommendatory)Timeline of reporting of cyber incidents to RBI specified as 6 hours (IT Framework did not contain any such timeline)Use of Digital Signature to authenticate electronic records has been made mandatory (earlier recommendatory)For NBFCs with asset size above ₹ 500 cr-Chapter IV of IT Directions, has specified that IT capacity requirements are now to be ensured by ITSC
There is additional expectation that Risk and Control Self Assessment (RCSA) shall be conducted by vendors as well and such RCSA should be evaluated by the Credit-Card issuing NBFC.Credit-Card issuing NBFCs are required to comply with a number of technical standards for card payment security. Status of compliance with these standards are to be reported to the ITSC for deliberation and appropriate action.
Change in name of return DNBS09 from DNBS09-CRILC Weekly– RDB return to DNBS09- Return on Defaulted Borrowers.Quarterly return on Large Exposure Framework to be filed quarterly by all NBFCs in the Upper Layer – The earlier requirement was reporting of 10 largest exposures of the entity as against the proposed requirement of reporting the top 20 largest exposures. Change in nomenclature of returns on fraud reporting:FMR-I to FMRFMR-III to FUAFMR-IV to FMR 4Form A Certificate is now proposed to be filed online instead of filing in hard copy/ via email.It is proposed that hard copy of returns (hand/post/courier) or email submissions would not be accepted (i.e., would not be deemed to have been submitted by the NBFC) unless specifically prescribed.Additional returns to be filed by SPDs specified.
Chapter III – All NBFCs including HFCs and MFIsChapter IV – Deposit Taking NBFCs (excl. HFCs)Chapter V- Deposit taking, Non-Depositaking, in Middle, Upper and Top Layers including CICs but excluding NBFCs not accepting/ intending to accept public funds.
The phased manner timelines for implementation of CFSS has been removed since the circular is now effective
Clarified that the auditor is now obligated to report to the RBI instances of non-compliance with all applicable extant directions issued by RBI. Other than the above, no major change except updation of references.
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– RBI’s 1st April circular bars Banks from INR-derivatives, with “related parties”, giving an Ind AS meaning to the term
In a move to maintain the integrity of INR in the evolving market conditions and avoid a potential misuse of intra-group structures to bypass regulatory constraints, the RBI has issued revised instructions on Risk Management and Inter-Bank Dealings.
Bar on non-deliverable INR derivatives:
Considering the prevailing situation in the currency market, RBI has prohibited banks from entering into derivatives involving INR on non-deliverable basis.
The bar extends to rebooking of any derivative contract, whether deliverable or non deliverable, entered before 1st April, maturing after this date.
Fx-Derivatives contracts involving INR: not permitted with related parties
The instructions prohibit any form of foreign exchange derivative contract involving INR with their related parties. Note that, the bar is not limited to “non-deliverable” contracts, rather, extends to all forex derivative contracts involving INR. This complete bar is likely to impact the financial markets where it is quite common to undertake such derivative transactions with related parties, more particularly, in banking groups constituting one or more financial sector entities (including NBFCs, insurance entities etc.).
What is even more interesting is that the meaning of “related party” for this purpose is drawn from Ind AS. Banks in India are currently not following Ind AS, and therefore, they maintain a list of related parties as per IGAAP, viz., AS 18. However, the Circular explicitly refers to Ind AS 24 or equivalent international standards. This, therefore, requires immediate action on the part of banks to draw a list of related parties, not on the basis of the accounting standards applicable to them (AS-18), but, on the basis of the widely recognised IAS-24 (Ind AS 24 in the Indian context).
The instructions refer to Indian Accounting Standard (Ind AS) 24 – Related Party Disclosures or International Accounting Standard (IAS) 24 – Related Party Disclosures or any other equivalent accounting standards. The reference thus, is not of “applicable accounting standards”, but of “equivalent accounting standards”, meaning thereby, that banks would be required to draw their list of related parties based on Ind AS 24 or its equivalent based on the country whose accounting standards are being followed by the bank in question. For instance, a foreign bank incorporated in the US will draw its definition of related party from US GAAP (ASC 850) being the equivalent of IAS 24.
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In the world of finance, where EMIs reign is supreme, a quiet revolution is brewing. For decades, the EMI—a fixed, predictable monthly payment—has been the default repayment option in case of loans. This repayment model aligns well with the cash-flow profile of salaried borrowers, whose income is credited at predictable monthly intervals. A fixed monthly outflow is therefore rational and manageable for the borrower. But what happens when there are borrowers who don’t live by the calendar?
In India there also exists a substantial segment of borrowers with fluctuating income streams such as taxi drivers, gig workers, small traders, daily wage earners, contract-workers, etc. Their earnings are typically received on a daily or near-daily or weekly basis and may fluctuate based on demand, seasonality, or operational variables. For such a category of borrowers, imposing a lump-sum monthly repayment obligation may create liquidity stress. People with irregular income may find it difficult to set aside a large lump sum to honor the obligation on the due date, even if their total earnings over the month are sufficient. As a result, they may lead to missed payments not because they lack income or resources, but because their cash flow does not align with the repayment schedule.
To address this structural mismatch between income frequency and repayment frequency, banks and NBFCs have been exploring the option of Equated Daily Instalments (“EDIs”). Under an EDI structure, the repayment obligation is broken into smaller, more frequent daily amounts, theoretically aligning repayment with the borrower’s earning cycle and smoothing liquidity issues.
Regulatory Landscape
There is no regulatory prohibition under the RBI framework preventing lenders from offering daily repayment options in their loan products. In fact, the RBI’s Key Fact Statement (KFS) format prescribed under the Responsible Lending Conduct Directions acknowledges not only EMIs but has referred to the term Equated Periodic Instalments (‘EPI’), which has a broader meaning.
The use of the term EPI indicates that repayment need not necessarily be structured on a monthly basis. Rather, lenders are permitted to determine an appropriate repayment frequency whether daily, weekly, fortnightly, or monthly depending on the loan product and borrower profile. The repayment frequency is arrived at by considering the source of income, cashflows of the borrower; this ensures that servicing of such loans is aligned with the borrower’s income profile and does not create any undue financial burden or pushes the borrower towards a debt trap.
Suitability of the Lending Product
Irrespective of the repayment frequency, the issue of fairness in lending still needs to be examined. In case a borrower is required to make repayments every single day, any small disruption in income will be considered as a default and have an immediate impact on the borrower’s performance. For example, if the borrower falls sick or is unable to work for a few days, their daily income may stop. In such a case, they may miss one or more installment payments. Since the due date arises daily under an EDI structure, even one missed payment can start the DPD count, and the delay will continue to add up to the repayment obligation until the payment is made.
This situation will have adverse implications not just for the borrower but also for the lender. The borrower’s credit record may worsen quickly, even if the income disruption is temporary. At the same time, the lender may see rising delinquencies in its portfolio.
While EDIs may help in synchronising repayment with daily income, they provide very little cushion to borrowers in case of unforeseen and unexpected events resulting in default in repayment. Lenders may instead consider a weekly repayment model, where borrowers can collect and accumulate their daily earnings and repay the lender on a weekly basis.
A weekly installment structure provides the borrower with a limited but meaningful cushion. If the borrower is unable to earn on a particular day, they still have the remaining days of the week to generate income and arrange the repayment amount. This flexibility reduces the likelihood of an immediate default and offers a more balanced approach between daily and monthly repayment models.
Operational Flexibility for Lender
From an operational perspective, daily repayments also create practical challenges. The lender would need to monitor DPD status every day, carry out daily accounting entries, and reconcile payments continuously. For a large number of borrowers, this can become difficult and resource-intensive. Further, if collections are done manually or through agents, missed payments may require daily follow-ups. This increases recovery costs and may create borrower stress or reputational risks for the lender.
Having said that, this kind of arrangement is restricted under the digital lending regulations. Paragraph 10(2) of the RBI (NBFC- Credit Facilities) Directions, 2026 mandates that all loan servicing and repayments must be executed directly by the borrower into the regulated entity’s bank account. The framework expressly prohibits the use of pass-through or pool accounts of any third party, including those of a Lending Service Provider (‘LSP’).
Accordingly, under the current digital lending regime, repayments cannot be routed through an intermediary. This makes such a model difficult to implement for loans that are originated digitally.
Conclusion
The choice of repayment frequency should not be driven by convention alone, but by the borrower’s income pattern and capacity to absorb short-term shocks. EDIs attempt to bridge this gap, but a rigid daily obligation can expose borrowers to immediate default in the event of even minor income disruptions.
At the same time, daily repayment structures increase operational and monitoring burdens for lenders. Therefore, the focus should be on designing repayment models that balance flexibility with discipline. Structures such as weekly repayments, grace periods, or limited flexibility mechanisms may provide a more sustainable balance. Ultimately, a well-designed repayment model protects both borrower credit health and lender portfolio quality, reinforcing the broader principles of responsible and fair lending.
https://vinodkothari.com/wp-content/uploads/2023/06/vinod-kothari-logo.png00Staffhttps://vinodkothari.com/wp-content/uploads/2023/06/vinod-kothari-logo.pngStaff2026-04-02 11:12:342026-04-02 11:12:34Rethinking Repayment Recurrence: EMIs, EWIs or EDIs
Effective from 1st July 2026 instead of 1st April 2026
Banks may opt for early adoption in its entirety
This would mean an additional window of 3 months towards implementation of the revised rules on capital market exposures.
Acquisition Finance: clarifications on mergers and amalgamation, on-lending for acquisition permitted: target not to be a financial entity
Mergers and amalgamations permitted within acquisition finance, definition amended [Para 4(1)(ia)]
This is a clarificatory change
Target can be non-financial entity only [Para 170A]
Restriction extends to indirectly acquiring control over financial entities who are subsidiaries/ JV of target entity [proviso to Para 170B]
Earlier Directions referred to restriction on the Acquiring entity as a financial entity, the Revised Directions extends the restrictions on the target company too, thus limiting the scope of companies that may be acquired through
On-lending by Acquiring entity to subsidiaries for acquiring control permitted [Para 170E(2)]
Earlier, lending was permitted to subsidiary/ SPV based on strength of Acquiring company by the bank, now, the Revised Directions further permit on-lending by the Acquiring entity to its subsidiary
Potential synergies to be collectively met for all companies of a group acquired pursuant to acquisition finance [Para 170B]
Lending to subsidiary/ SPV based on strength of Acquiring company, corporate guarantee to be provided by Acquiring company
Capital Market Intermediaries: relief that does not last long
Bank financing for proprietary trading permitted subject to 100% collateral in the form of cash and cash equivalents [third proviso to Para 219ZA]
While the proviso enables bank finance, in view of the 100% liquid security requirements, the industry participants does not seem to consider this a favourable change towards meeting the working capital requirements. However, the 3-months’ breather may be considered a favourable step.
For non-debt Mutual Funds, intraday facilities secured by guaranteed receivables not to be considered as Capital Market Exposure
Receivables guaranteed on account of maturity proceeds of G Secs, T-Bills, SDL, or interest from G-Sec and SDLs held by such mutual funds, or maturity proceeds of TREPS from CCIL
Lending to individuals: limits to be monitored at banking system level
Cap of Rs. 1 crore on lending against eligible securities and Rs. 25 lacs for IPO/ FPO/ ESOP financing to be applicable at banking system level
While the borrower-level limits stand increased on an individual basis, the application of such limits at a banking system level will ensure that excessive borrowings are not done by an individual borrower for capital market dealings
See a detailed article on the Amendments on Capital Market Exposures here.
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