Source: BL
Context:
The Reserve Bank of India (RBI) has proposed reducing risk weights on loans given by Non-Banking Financial Companies (NBFCs) to high-quality operational infrastructure projects, according to draft guidelines released on October 24, 2025. The move seeks to reduce financing costs, promote infrastructure lending, and align capital norms with actual project risk.
Key Highlights:
- Lower Risk Weights Proposed:
- Loans where the borrower has repaid at least 10% of the sanctioned amount → 50% risk weight (reduced from 100%).
- Loans where the borrower has repaid between 5% and 10% of the sanctioned amount → 75% risk weight.
- Definition of High-Quality Infrastructure Projects:
- The project must have completed at least one year of satisfactory operations after the Commercial Operations Date (COD).
- The exposure should be classified as standard in the NBFC’s books.
- The obligor’s revenue should primarily depend on one main counterparty — either the Central Government or a Public Sector Entity (PSE).
- Additional safeguards must include:
- Escrow of project cash flows
- First charge over assets
- Restrictions on additional borrowings
- The obligor must have adequate financial arrangements to meet current and future working capital needs.
- Policy Context:
- The proposal aligns with the RBI’s announcement during the Monetary Policy Committee (MPC) meeting earlier in 2025 to rationalize capital adequacy norms for NBFCs.
- NBFCs are already permitted to assign lower risk weights for operational Public-Private Partnership (PPP) projects.
- This framework extends the benefit to other operational infrastructure projects that meet defined quality standards.
