Source: BS
Context:
The Reserve Bank of India (RBI) has proposed reducing risk weights for loans by Non-Banking Financial Companies (NBFCs) to operational, high-quality infrastructure projects.
- Objective: Reduce the cost of infrastructure financing, improve risk assessment, and optimise capital allocation.
- The framework will be principle-based, allowing NBFCs more discretion in assigning risk weights for infrastructure lending.
Key Highlights
Scope of Proposal
- Applies to NBFCs lending to operational infrastructure projects.
- Draft regulations will be issued for public consultation before implementation.
- Existing norms already allow lower-risk weights for PPP projects; the proposal extends clarity and flexibility for other operational projects.
Expected Impact
- Cost of financing: Reduced for NBFCs, potentially making infrastructure projects more viable.
- Competitiveness: Other NBFCs beyond IDFs and IFCs can benefit, expanding financing sources.
- Market participation: Could attract new players to infrastructure lending.
Risks & Cautions
- Supervisory oversight is essential to avoid underestimation of risks.
- Excessive lowering of risk weights may lead to over-leveraging and concentration in infrastructure portfolios.
- NBFCs need prudent capitalisation to maintain strong credit profiles.
