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Informist, Tuesday, Feb. 25, 2025

 

--RBI rolls back Nov 2023 hike in risk weights on banks' loans to NBFCs 

--RBI: Restored risk weight on banks' loans to NBFCs effective from Apr 1 

 

MUMBAI - The Reserve Bank of India on Tuesday rolled back the rise in risk weights on bank loans to non-banking finance companies. RBI had in November 2023 hiked the risk weights on bank loans to NBFCs by 25 percentage points in all cases where the extant risk weight as per external rating of NBFCs was below 100%.

 

"On a review, it has been decided to restore the risk weights applicable to such exposures and the same shall be as per the external rating," the RBI said in a notification. The new risk weights will be effective from Apr. 1, the notification said. 

 

At the post-Monetary Policy Committee meeting press conference in February, RBI Deputy Governor J. Swaminathan had said that RBI had increased the risk weights on bank loans to NBFCs after seeing a concentration risk building up. "We saw a concentration risk building up resulting in an inter-connectedness between two financial entities (banks and NBFCs). So, we brought certain additional risks so that that gets moderated." He said that bank finance, which used to be less than 30%, had gone almost close to 46%-47% of NBFCs' balance sheet as a resource. 

 

"Now if you look at it, the resources for NBFC are more or less now distributed as one-third each. So, again, it had a certain purpose, which is something which is holding good even today at this point in time," Swaminathan had said.

 

It was not the RBI's intention to stop any particular form of lending or business. The RBI's intention was only to moderate and to ensure orderly growth, keeping in mind financial stability, the RBI deputy governor had said.

 

As per the latest sectoral deployment data, the bank credit to non-bank lenders fell to 6.7% as on Dec. 27 from 21.5% as on Nov. 17, 2023, before the risk weights were increased.  End

 

Reported by Kshipra Petkar

Edited by Saji George Titus

 

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