RBI tweaks banks’ lending norms, pushes NBFCs to modify funding strategy

NBFCs may shift funding strategy as RBI eases bank lending norms, reducing risk weight on microfinance loans. Banks are likely to prioritise top-rated NBFCs before expanding credit

Indian non-banking financial companies (NBFCs) are expected to adjust their funding strategies in the upcoming financial year, driven by the Reserve Bank of India’s (RBI) decision to ease certain lending regulations. This move may encourage banks to increase their funding to NBFCs, news agency Reuters reported.
 
The RBI has rolled back some of the stricter rules on bank loans to NBFCs, reducing the risk weight on consumer microfinance loans by 25 percentage points to 100 per cent. This effectively restores the earlier risk weight framework.  
 
The Reuters report quoted George Alexander Muthoot, managing director of Muthoot Finance, as saying that this adjustment will free up capital for banks, allowing them to lend more to NBFCs, making bank funding a more attractive option for these firms.