Demand to reduce risk weightage of banks for lending to NBFCs

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Mumbai: Non-banking finance companies (NBFCs) have been asked to reduce the risk weightage on loans provided by banks. Any financial stress on NBFCs can cause disruption to business houses, as NBFCs provide secured loans to small businesses.

The Finance Industry Development Council, an association of NBFCs, said the RBI's new norms are good for the safety of NBFCs and banks, but it will also indirectly hurt small business houses.

Council sources said that the Reserve Bank has been requested to reconsider the decision to increase the risk weightage on loans provided by banks to NBFCs.

Due to these measures, the flow of money to MSMEs, small businesses and the self-employed will decrease. This segment mostly depends on NBFCs for their financial needs.

The Council welcomed the measures taken by the Reserve Bank to curb the rise in unsecured credit.

While the RBI has increased the risk-weight on consumer loans for all borrowers, finance companies have had a double whammy as the RBI has also increased the risk-weight for bank loans extended to NBFCs.

RBI's decision to increase risk weightage may result in burden on banks to increase interest rates. The new norm will create an additional burden on banks which they will have to pass on to borrowers, said a banker.

As the risk weightage increases, the return on equity will go down, so banks will have to make some changes in lending rates. Personal loans may increase by 35 to 40 basis points or even more, he added.


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