RBI Boosts Infrastructure Financing with Expanded Credit Enhancement

As of August 6th, 2025, the Reserve Bank of India (RBI) has taken steps to broaden the funding sources for infrastructure projects. The central bank has now allowed commercial banks, co-operative banks, non-banking financial companies (NBFCs), and development financial institutions to offer partial credit enhancement (PCE) facilities.

The PCE mechanism is designed to improve the creditworthiness of debt securities and provide investors with partial protection against default risk. By enabling these regulated entities to extend PCE, the RBI's objective is to enhance the credit ratings of corporate bonds, thereby allowing companies to access the bond market on more favorable terms.

Previously, the PCE facility was mostly offered by banks. However, the new regulations, which came into effect on April 1st, 2026, or even earlier as per the internal policies of the lender, have expanded the scope of this tool. The lender can now provide PCE up to a maximum of 50% of the total size of the bond issue, up from the earlier limit of 20%. Additionally, the enhancement across entities has been capped at 50%, and it will be applicable to bond issuances with an initial rating lower than 'BBB-'.

In the case of NBFC-provided PCE, the bonds should have a minimum tenor of three years. These changes are expected to enhance the attractiveness of the bond market for corporates seeking infrastructure financing, ultimately supporting the country's economic growth.