RBI reduces risk weights for bank lending to NBFCs

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The Reserve Bank of India (RBI) has decided to assign risk weights for the rated exposures of banks to all non-banking financial companies (NBFC) to facilitate credit flow to the sector that is reeling under liquidity pressure post IL&FS defaults in August.

The guidelines will be out by February end.

“With a view to facilitating flow of credit to well-rated NBFCs, it has now been 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,” said RBI in a statement on development and regulatory policies. “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 said 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%.

Also, 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%.

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.

The regulator said 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 per cent of the NBFCs by number.

[“source=economictimes.indiatimes”]