RBI partly dials back strict loan rules for micro credit, non-bank lenders

The Reserve Bank of India has partially reversed tighter rules for bank loans to small borrowers and non-bank lenders, according to two separate circulars issued on Tuesday. 

The reversal of rules follows the central bank's decision to defer proposals to increase the capital that banks set aside for new project loans and liquidity they hold for digital deposits.   

The actions come after a change of guard at the central bank, with Sanjay Malhotra taking over as governor amid a slowdown in economic growth. 

The RBI trimmed risk weight requirements for banks on consumer microfinance loans by 25 percentage points to 100 per cent. 

 

The central bank had in 2023 increased the risk weights for banks and non-bank financial companies (NBFCs), or the capital that banks need to set aside for every loan, by 25 percentage points to 125 per cent on retail loans, amid concerns over a surge in small personal loans. 

While certain categories like housing loans had been excluded from the increased capital requirement at the time, micro credit was not. 

The RBI did not elaborate on why it was reverting to its earlier risk weight requirements. 

In a separate statement on Tuesday, the central bank also said it was restoring risk weights applicable on banks' exposure to non-bank lenders based on their credit rating. 

In November 2023, the RBI had raised the risk weight for non-bank finance companies by 25 percentage points if their external rating required banks to set aside less than 100 per cent in risk capital.     

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