RBI Revises Risk Weights on Bank Exposures to NBFCs

Reserve Bank of India (RBI) has revised risk weight requirements for Scheduled Commercial Banks (SCBs), including Small Finance Banks (SFBs) but excluding Regional Rural Banks (RRBs) and Payments Banks, on their exposures to Non-Banking Financial Companies (NBFCs). In its earlier directive dated November 16, 2023, RBI had increased risk weights on these exposures by 25 percentage points if the existing risk weight based on the NBFC’s external rating was below 100%.

After reviewing the impact of this measure, RBI has now restored risk weights to levels determined solely by the external rating of the NBFC, as specified in the Basel III Capital Regulations. These revised norms will be applicable from April 1, 2025, and all other instructions from the previous circular remain unchanged.

The revised risk weights exclude loans to housing finance companies and NBFCs classified under priority sector lending.

Regulatory measures towards consumer credit and bank credit to NBFCs are issued by RBI on November 16, 2023

2B extracted from the same is as below:

“B. Bank credit to NBFCs

In terms of extant norms, exposures of SCBs to NBFCs, excluding core investment companies, are risk weighted as per the ratings assigned by accredited external credit assessment institutions (ECAI). On a review, it has been decided to increase the risk weights on such exposures of SCBs by 25 % points (over and above the risk weight associated with the given external rating) in all cases where the extant risk weight as per external rating of NBFCs is below 100%. For this purpose, loans to HFCs, and loans to NBFCs which are eligible for classification as priority sector in terms of the extant instructions shall be excluded.”

Paragraph 5.8 of the ‘Master Circular – Basel III Capital Regulations refers to ‘ Claims on Corporates & NBFCs’

5.8.1 from the same is extracted as below:

5.8.1 Claims on corporates, and exposures to all NBFC, excluding Core Investment Companies (CICs), will be risk weighted as per the ratings assigned by the rating agencies registered with SEBI and accredited by the Reserve Bank of India. Exposures to CICs, rated as well as unrated, will be risk-weighted at 100%. The following table indicates the risk weight applicable to claims on corporates and exposures to all NBFCs, excluding CICs.

Long term Claims on Corporates and NBFCs excluding CICs– Risk Weights

Reserve Bank of India

RBI/2024-25/120
DOR.STR.REC.61/21.06.001/2024-25 Dated: February 25, 2025

All Scheduled Commercial Banks (including Small Finance Banks but excluding Regional Rural Banks and Payments Banks)

Madam / Dear Sir,

Exposures of Scheduled Commercial Banks (SCBs) to Non-Banking Financial Companies (NBFCs) – Review of Risk Weights

In terms of Paragraph 2.B of the circular ‘Regulatory measures towards consumer credit and bank credit to NBFCs’ dated November 16, 2023, the risk weight on the exposures of SCBs to NBFCs¹ was increased by 25 percentage points (over and above the risk weight associated with the given external rating) in all cases where the extant risk weight as per external rating of NBFCs was below 100 per cent.

2. On a review, it has been decided to restore the risk weights applicable to such exposures and the same shall be as per the external rating, as specified in Paragraph 5.8.1 of the ‘Master Circular – Basel III Capital Regulations’ dated April 1, 2024², as amended from time to time.

3. The above instructions shall come into effect from April 01, 2025. All other instructions of the circulars ibid remain unchanged.

Yours faithfully,

(Vaibhav Chaturvedi)
Chief General Manager

Notes: 

¹ Excluding loans to housing finance companies, and loans to NBFCs which are eligible for classification as priority sector in terms of the extant instructions

² As also applicable to Small Finance Banks, in terms of Paragraph 1.4 of the Annex to Operating Guidelines for Small Finance Banks dated October 06, 2016