RBI Microloan Risk Weights Clarified: 75% and 100% Slabs
Why in the news
RBI cleared up confusion over microloan risk weights, easing capital requirements for banks and helping lending to NBFCs.
Key facts
| Loan type | Risk weight now | Earlier |
|---|---|---|
| Regulatory retail / business microloans | 75% | Unclear, treated at 125% |
| Consumer credit microloans (non-regulatory retail) | 100% | 125% |
- Crisil Ratings’ Ajit Velonie said the step frees bank capital for NBFC lending.
- NBFC bank borrowings slipped from 47% to 45% versus pre-November 2023 as they tapped capital markets and ECBs.
- Rising ECB hedging costs from dollar volatility narrowed alternatives.
Background
- RBI’s November 2023 guideline left banks fearing higher risk weights while NBFCs saw none.
- Some banks were pushed by supervisors to raise weights, causing unequal treatment.
- A mid-sized bank’s risk officer said the ambiguity is now gone.
Significance
- More lending capacity and regulatory certainty for banks and NBFCs.
- Stable NBFC funding and support for financial inclusion in underserved areas.
Exam angle
- Regulator: RBI; concept: risk weight and capital requirement.
- Numbers: 75%, 100%, 125%.