RBI revises risk weights for NBFCs' sovereign debt exposures

The Reserve Bank today asked non- systematically important deposit taking and non-deposit-taking NBFCs, including infra and micro-lenders, to set aside 15 per cent of their aggregate capital towards their holdings in Central and State Governments' debts as prudential measures.
In a circular, the central bank said the new norms will be applicable to all deposit accepting non-systematically important NBFCs, systemically important non-deposit taking NBFCs, all NBFC-MFIs and all NBFC-infra finance companies.
They will "maintain a minimum capital ratio consisting of tier I and II capital not less than 15 per cent of their aggregate risk weighted assets on-balance sheet and of risk adjusted value of off-balance sheet items," the RBI said.

Under the new norms, these companies will attract zero risks to their exposures to Central Government debt, both fund based and non-fund based. The same will be the case for the Central Government-guaranteed claims, the regulator said.
For exposures to State Governments debt, there will also be zero risk weight if their exposures are to direct loan /credit/overdraft exposure and investment from state government securities.
But State Government-guaranteed claims, which have not remained in default, will attract 20 per cent risk weight and if the loans guaranteed by the states have remained in default for over 90 days, the risk weight will be 100 per cent.

Today's notification will supersede the existing regulations issued in February 2007 and February 2015, it said.
The central bank said the revision is based on the representations from the industry.