New risk weight to ease liquidity for infra NBFCs

The credit rating assigned to non-banking finance companies (NBFCs) involved in infrastructure will now be linked to the risk weight of a bank’s exposure to the former.

This is likely to ease liquidity for such NBFCs.

“Since financing by such NBFCs will essentially result in creation of physical infrastructure, it is proposed to link the risk weights of banks’ exposure to such NBFCs to the credit rating assigned to the NBFC by external credit assessment institutions,” RBI said in its second-quarter review of monetary policy.

At present, the risk weight for banks' exposure to NBFCs is 100 per cent.

In addition, RBI has formed a fourth classification for NBFCs which hold at least 75 per cent of all their assets for financing infrastructure projects. These will be termed infrastructure NBFCs. So far, NBFCs were classified under three categories — asset finance companies, loan companies and investment companies.

NBFC players expect the move to be positive for the industry, resulting in easier access to funds. The major NBFC players in infrastructure include Infrastructure Development Finance Company, SREI Infrastructure Finance, Power Finance Corporation and Rural Electrification Corporation.

“Infrastructure financing needs long-term funds, so it was very important to form a separate category. Now, we can approach RBI and create an environment for relaxation of borrowing norms. We can ask them to raise external commercial borrowing limits,” said Srei Infrastructure Managing Director Hemant Kanoria.

“Linking risk weight to credit rating will have a positive impact and liquidity will be readily available to NBFCs doing infrastructure lending.

With a separate categorisation, NBFCs engaged in infrastructure lending can get special dispensation and will have a clear differentiation,” said L&T Infrastructure Chief Executive Suneet K Maheshwari.

RBI said the special purpose vehicle created to meet the temporary liquidity mismatch for NBFCs during the economic crisis last year would cease to make fresh purchases after December 31 and would recover all dues by March 31, 2010. The facility was availed to the extent of Rs.750 crore and repaid fully by July 7, 2009.