RBI proposes lower risk weight for NBFC loans to infrastructure projects

Draft norms define high-quality infrastructure projects, aim to reduce capital burden for NBFCs and align risk weights with actual project performance

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The Reserve Bank of India (RBI) has proposed to reduce risk weight on high-quality infrastructure projects of non-banking financial companies (NBFCs), the apex bank said in its draft guidelines issued on Friday.

 

Loans to high quality infrastructure projects — where the borrower has repaid at least 10 per cent of the sanctioned amount — would attract 50 per cent of risk weight.

 

If the borrower has paid at least 5 per cent but less than 10 per cent of the sanctioned amount, it would attract 75 per cent of risk weight compared to 100 per cent earlier, the draft guidelines said.

 

Under the draft guidelines, the central bank has defined “high-quality infrastructure projects” which have completed at least one year of satisfactory operations post achievement of the date of completion of commercial operations.

 

“The infrastructure project has completed at least one year of satisfactory operations post achievement of the date of completion of commercial operations. The exposure is classified as ‘standard’ in the books of the lender and will be classified as a high-quality infrastructure project,” said the draft guidelines.

 

Further, the obligor's or borrower’s revenue depends on one main counterparty — central government or a public sector entity. Additional safeguards such as escrow of cash flows, first charge over assets, and restrictions on additional borrowing are also required. 

 

The draft guidelines also noted that the obligor should have sufficient internal or external financial arrangements to cover the current and future working capital and other funding requirements of the project.

 

The central bank — in its last Monetary Policy Committee (MPC) meeting — had proposed to reduce risk weight applicable to lending by NBFCs to high-quality operational infrastructure projects.

 

The existing capital adequacy norms already permit NBFCs to assign lower risk weights to operational projects under the public-private partnership model. The move aims to reduce the cost of financing infrastructure norms.

 

The central bank said the framework aims to align risk weights with the actual risk characteristics of operational infrastructure projects, promoting better risk assessment and capital allocation.

 

Some NBFCs, such as Infrastructure Debt Funds (IDFs) and Infrastructure Finance already apply lower risk weights (50 per cent). This is for loans backed by tripartite agreements but not to other wholesale NBFC lending. 

Likely impact 

Will encourage more lending to operational infrastructure projects 

May lower financing costs for infrastructure development 

May improve capital efficiency and balance sheet flexibility 

Aligns risk assessment with project performance and stability 

Will enhance long-term funding flow to quality infrastructure assets