Bandhan Bank, Ujjivan Small Finance Bank major beneficiaries of RBI move

The reversal in risk weights on MFI loans from 125 per cent to 100 per cent and 75 per cent will help reduce risk weighted assets or RWAs for banks

The Reserve Bank of India (RBI) decided to make a significant policy reversal, by rolling back the excess 25 per cent risk weights on the exposures of banks to non-banking financial companies or NBFCs, as well as Micro-Finance Institutions (MFI) which had been raised in November 2023. This reduction will support growth and improve CET-1 (Common Equity tier 1) for banks.

 

The November 2023 decision had stressed capital adequacy ratios, creating challenges for banks. The reduction to pre-Nov’23 levels will alleviate pressure, in a scenario where profitability of many mid-sized banks is under pressure due to quality concerns about unsecured