RBI Rolls Back Higher Risk Weights on Bank Loans to NBFCs
Why in the news
RBI reversed its earlier rise in risk weights on bank loans to NBFCs, effective 1 April 2025, to lift credit flow and release capital for banks.
Background
- 16 November 2023: RBI raised weights by 25 percentage points where external-rating-based weights were under 100%.
- Hit AAA, AA and A rated NBFCs, making bank loans to them capital-heavy.
Why reversed
| Indicator | Earlier | By December 2024 |
|---|---|---|
| Bank loan growth to NBFCs | 15% | 6.7% |
| Overall bank credit growth | 20% | 11.2% |
- Higher weights discouraged banks from lending to NBFCs and worsened NBFC liquidity.
New structure
- Weights for NBFC loans return to external-rating-linked levels.
- For microloans, a 75-100% weight applies instead of 125%.
Significance
- Easier funding for NBFCs and capital relief for banks, improving capital adequacy.
- May help recover overall credit growth.
Exam angle
- Effective date: 1 April 2025; original hike: 16 November 2023 (+25 points).