MUMBAI
The Reserve Bank of India (RBI) has lowered the risk weight on the exposure of Scheduled Commercial Banks’ (SCBs) lending to non-banking finance companies (NBFCs) and microfinance loans.
The risk weight on the exposures was increased by 25 percentage points in 2023 in the case of NBFCs and on a review, the RBI decided to restore the risk weights applicable to such exposures, the central bank said, adding that this would come into effect from April 1.
“It is a welcome move in view of the current headwinds faced by the sector; this shall to an extent provide some relief to the players and facilitate credit flow to a broader set of players than what was witnessed in the recent past,” said A.M. Karthik senior vice-president, Financial Sector Ratings, ICRA. ”Significant slowdown in bank credit to NBFCs in the current fiscal, tighter market liquidity in general and, to prioritise credit flow to the underserved segment for growth, the RBI has reversed its earlier decision of increasing the risk weight of the bank credit to NBFCs,” he said.
Anil Gupta, senior Vice President, Financial Sector Ratings ICRA said, “The restoration of lower risk weights for better rated NBFCs will improve the credit flow from banks to NBFCs, while being immediately beneficial for their capital ratios.” “With improved credit flow to NBFCs, the overall credit flow to the retail segment is expected to improve thereby supporting overall economic growth. This change with deferment of proposed LCR framework are expected to improve the bank credit growth in FY26 compared to FY25,” he said.
Published – February 25, 2025 10:14 pm IST
