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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%.
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.

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


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