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RBI to assign risk weights for rated exposures of banks to NBFCs

08 Feb 2019 Evaluate

With an aim to facilitating flow of credit to well-rated non-banking financial companies (NBFCs), the Reserve Bank of India (RBI) has decided to reduce risk weights for bank lending to NBFCs. The RBI has decided that rated exposures of banks to all NBFCs, excluding Core Investment Companies (CICs), would be risk-weighted as per the ratings assigned by the accredited rating agencies, in a manner similar to that for corporates. Exposures to CICs will continue to be risk-weighted at 100%. Guidelines in this regard will be issued by the end of February 2019.

RBI stated that under extant guidelines on Basel III Capital Regulations, exposures/claims of banks on rated as well as unrated Non-deposit Taking Systemically Important Non-Banking Financial Companies (NBFC-ND-SIs), other than Asset Finance Companies (AFCs), Non-Banking Financial Companies - Infrastructure Finance Companies (NBFCs-IFC) and Non-Banking Financial Companies - Infrastructure Development Fund (NBFCs-IDF), have to be uniformly risk-weighted at 100%.

Besides, the RBI has decided to harmonise major categories of NBFCs engaged in credit intermediation, Asset Finance Companies (AFC), Loan Companies, and Investment Companies, into a single category.  Meanwhile, it added that the proposed merger of existing categories would reduce to a large extent the complexities arising from multiple categories and also provide the NBFCs greater flexibility in their operations. It will cover 99% of the NBFCs by number.

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