RBI decides to ease lending rules for NBFCs, micro finance firms

The Reserve Bank on Tuesday lowered risk weights for bank finance to non-banking financial companies (NBFCs) and microfinance loans, a move that will unlock more funds and boost credit.

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A lower risk weight means that lenders need to set aside less funds as a safety net for consumer loans, implying an increase in their lending capacity.

Both NBFCs and microfinance institutions have witnessed a slow down in their lending after the central bank tightened lending norms by raising the risk weight in November 2023.

The risk weight on the exposures of commercial banks to NBFCs was increased by 25 percentage points (over and above the risk weight associated with the given external rating) in all cases where the extant risk weight as per external rating of NBFCs was below 100 per cent.

“On a review, it has been decided to restore the risk weights applicable to such exposures...,” the RBI said in circular. In another circular, the RBI said it has reviewed risk weights on microfinance loans.