The Reserve Bank of India has revised the capital treatment for scheduled commercial banks’ exposures to non-banking financial companies, restoring the applicable risk weights to those implied by the NBFC’s external rating. This reverses the November 2023 measure that increased risk weights by 25 percentage points where the rating-based risk weight was below 100 per cent. The change applies to all scheduled commercial banks, including small finance banks, but excludes regional rural banks and payments banks. It covers exposures to NBFCs other than loans to housing finance companies and loans to NBFCs that are eligible for priority sector classification, with risk weights now to follow Paragraph 5.8.1 of the Master Circular on Basel III capital regulations (as amended). Other instructions under the November 2023 circular remain unchanged. The revised risk-weight treatment takes effect from April 1, 2025.
Reserve Bank of India 2025-02-25
Reserve Bank of India restores external rating based risk weights for banks’ exposures to NBFCs from April 2025
The Reserve Bank of India has revised capital treatment for scheduled commercial banks' exposures to non-banking financial companies (NBFCs), restoring risk weights to those based on the NBFC's external rating. This reverses the November 2023 measure that increased risk weights by 25 percentage points for ratings below 100%. The change excludes regional rural banks and payments banks and takes effect from April 1, 2025.