NBFC Risk Weights: Upper Layer Firms Ask RBI to Cut
Why in the news
Large Upper Layer NBFCs urged the Reserve Bank of India to cut risk weights on some loans, saying supervision of them now resembles that of banks.
Key facts
- Retail loans form about 90% of NBFC industry AUM.
- Higher risk weights than banks raise NBFC capital cost and hurt competitiveness.
- Other asks: a refinance window modelled on the National Housing Bank’s, and public deposits, barred for large NBFCs for decades.
Risk weights compared
| Loan type | Banks | NBFCs |
|---|---|---|
| Retail (vehicle, MSME, property, gold) | 75% | 100% |
| Corporate, AAA | 20% | 100% |
| Corporate, AA | 30% | 100% |
| Corporate, A | 50% | 100% |
Reasons and funding limits
- Higher capital adequacy ratios and stricter ECL provisioning.
- EPFO and PFRDA mostly buy government securities; NCD buying centres on AAA or AA NBFCs; mutual funds avoid lower-rated paper.
About Scale-Based Regulation
RBI’s SBR framework has four layers: Base, Middle, Upper (large, systemically important) and Top (if risks rise sharply).
Exam angle
- Compare 75% (banks, retail) against 100% (NBFCs).
- Layers: NBFC-BL, ML, UL, TL.