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Regulatory measures for credit exposures of bank and NBFCs

Reserve Bank of India (RBI) has taken regulatory measures towards credit exposures of banks and non-banking financial companies (NBFCs).

What is the rationale behind the regulatory measures?

The high growth in consumer credit and increasing dependency of non-banking financial companies (NBFCs) on bank borrowings may build-up risk in the portfolios of the banks and NBFCs. In view of this, Reserve Bank of India (RBI) has issued revised guidelines for certain credit exposures of banks and NBFCs.

What are the revised guidelines?

Previous Instructions Revised Instructions
Consumer credit exposure of commercial banks attract a risk weight of 100%. The risk weights in respect of consumer credit exposure of commercial banks (outstanding as well as new), including personal loans, but excluding housing loans, education loans, vehicle loans and loans secured by gold and gold jewellery, has been increased to 125%.

(Updated on February 25, 2025)
Microfinance loans in the nature of consumer credit shall also be excluded from the applicability of higher risk weights and shall be subject to a risk weight of 100%.
Microfinance loans which are not in the nature of consumer credit and fulfil all the four criteria specified in para 5.9.3 of the Master Circular on Basel III – Capital Regulations dated April 01, 2024, may be classified under regulatory retail portfolio (RRP) and attract a risk weight of 75%.
All microfinance loans extended by Regional Rural Banks (RRBs) and Local Area Banks (LABs) shall attract a risk weight of 100%.
NBFCs’ loan exposures generally attract a risk weight of 100%. The consumer credit exposure of NBFCs (outstanding as well as new) categorised as retail loans, excluding housing loans, educational loans, vehicle loans, loans against gold jewellery and microfinance / SHG loans, shall attract a risk weight of 125%.
Credit card receivables of scheduled commercial banks (SCBs) attract a risk weight of 125% while that of NBFCs attract a risk weight of 100%. The risk weights on such exposures has been increased to 150% and 125% for SCBs and NBFCs respectively.
Exposures of SCBs to NBFCs, excluding core investment companies, are risk weighted as per the ratings assigned by accredited external credit assessment institutions (ECAI). The risk weights on such exposures of SCBs has been increased by 25% (over and above the risk weight associated with the given external rating) in all cases where the extant risk weight as per external rating of NBFCs is below 100%.
For this purpose, loans to housing finance companies (HFCs), and loans to NBFCs which are eligible for classification as priority sector shall be excluded.

(Updated on February 25, 2025)
The risk weights applicable to such exposures have been restored and the same shall be as per the external rating (revised instruction applicable from April 01, 2025).

What are other guidelines?

  • All top-up loans extended by regulated entities (REs) against movable assets which are inherently depreciating in nature, such as vehicles, shall be treated as unsecured loans for credit appraisal, prudential limits and exposure purposes.
  • REs shall review their extant sectoral exposure limits for consumer credit and put in place Board approved limits in respect of various sub-segments under consumer credit. In particular, limits shall be prescribed for all unsecured consumer credit exposures. The limits so fixed shall be strictly adhered to and monitored on an ongoing basis by the Risk Management Committee. This shall be implemented by February 29, 2024.


References

Reserve Bank of India. (2023, November 16). 'Regulatory measures towards consumer credit and bank credit to NBFCs'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12567&Mode=0

Reserve Bank of India. (2025, February 25). 'Exposures of Scheduled Commercial Banks (SCBs) to Non-Banking Financial Companies (NBFCs) – Review of Risk Weights'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12787&Mode=0

Reserve Bank of India. (2025, February 25). 'Review of Risk Weights on Microfinance Loans'. Retrieved from https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12786&Mode=0


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