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RBI Eases Risk Weights for Bank Loans to NBFCs

27 February 20251 min read
BANKING & FINANCERBI Eases RiskWeights for BankLoans to NBFCs27 February 2025safalsetu.com

Why in the news

RBI rolled back the extra risk weights on bank lending to NBFCs from 1 April 2025 to help NBFCs facing funding strain, weak liquidity and stress in small-ticket and microfinance loans.

Background

  • RBI had added 25 percentage points to weights on bank loans to NBFCs and certain consumer credit such as personal loans and credit cards.
  • Bank lending to NBFCs slowed to 6.7% in 2024 from 15% in 2023.
  • Growth up to December 2024 was 4.8% against 13.2% a year earlier.

Impact of the rollback

OnEffect
BanksNBFCs take 9% of bank credit; lower weights free capital for more lending
NBFCsBanks fund them heavily (about ₹13 trillion); eases stress in microfinance and small-ticket loans
Financial systemMatches RBI’s recent liquidity steps under Governor Sanjay Malhotra: repo cut, bond buying, eased ECL, LCR and project finance norms

Significance

  • A pro-growth step supporting NBFC liquidity and broader financial stability.

Exam angle

  • Effective from 1 April 2025; RBI Governor: Sanjay Malhotra.
  • Terms: risk weight, ECL, LCR.

Test yourself

1. What share of total bank credit goes to NBFCs, per the RBI rollback notes?

NBFCs account for 9% of total bank credit.

2. Bank exposure to NBFCs, described as a key funding source, is about:

Banks have roughly ₹13 trillion in exposure to NBFCs.

3. Which RBI Governor's liquidity agenda is linked to the risk weight rollback?

The move fits the liquidity push under Sanjay Malhotra.

This topic is part of Daily Current Affairs 27 February 2025 (13 topics).

All topics of the dayDay quizFebruary 2025

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