Norms for bank lending to well-rated NBFCs eased

New Delhi | Updated: February 8, 2019 4:32:39 AM

The Reserve Bank of India (RBI) on Thursday eased guidelines for risk weights of banks having exposure towards rated non-bank finance companies (NBFCs), allowing a flow of credit towards well-rated NBFCs facing a liquidity crunch. The guidelines are to be issued by the end of February.

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By Shashank Nayar

The Reserve Bank of India (RBI) on Thursday eased guidelines for risk weights of banks having exposure towards rated non-bank finance companies (NBFCs), allowing a flow of credit towards well-rated NBFCs facing a liquidity crunch. The guidelines are to be issued by the end of February.

“With a view to facilitating the flow of credit to well-rated NBFCs, it has now been decided that rated exposures of banks to all NBFCs, excluding core investment companies, would be risk-weighted as per the ratings assigned by accredited rating agencies, in a manner similar to that for corporates,” the RBI said in its statement on developmental and regulatory policies.

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Bank credit towards NBFCs was at Rs 5.7 lakh crore as on December 2018, a 55 percent growth year-on-year, according to RBI data. “Reduction in risk weights for NBFCs is expected to free up the equity capital for banks against their exposures to NBFCs, which banks can use for incremental credit growth or improvement in their capital ratios. While this can also result in reduced borrowing rates and incremental credit supply for NBFCs, this will depend on banks’ willingness to do so,” said AM Karthik, assistant vice-president, ICRA.

The existing guidelines require a uniform 100 percent risk-weight on bank exposures to rated as well as unrated systematically important non-deposit taking NBFCs (NBFC-ND-SI).

However, the bank exposure to core investment companies (CICs) continues to be risk-weighted at 100%. A CIC is an NBFC carrying on the business of acquisition of shares and securities.

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