The Reserve Bank of India (RBI) has partially rolled back stricter lending rules for small borrowers and non-bank lenders, following recent policy adjustments aimed at balancing financial stability with economic growth.
Reversal of Loan Regulations for Microfinance and NBFCs
The RBI reduced risk weight requirements for banks on consumer microfinance loans from 125% to 100%, easing capital constraints for banks providing small personal loans. This adjustment follows the 2023 hike in risk weights, which had increased the capital banks and non-bank financial companies (NBFCs) needed to set aside for retail loans due to concerns over rapid growth in the segment.
At the time, certain categories like housing loans were excluded from the higher capital requirements, but microcredit loans remained affected. The RBI’s latest move now reverses some of these restrictions, providing relief to lenders and borrowers alike.
Regulatory Adjustments for Non-Bank Lenders
In a separate statement, the RBI also restored risk weight rules on banks’ exposure to NBFCs, aligning them with credit ratings.
Previously, in November 2023, the RBI had raised risk weights by 25 percentage points for NBFCs with external credit ratings requiring banks to set aside less than 100% in risk capital. This policy shift now relaxes capital requirements for banks lending to NBFCs, potentially increasing liquidity for the sector.
Also read: IIM Study: Green Lending Boosts Bank Stability
Policy Shift Amid Economic Slowdown
The regulatory rollback follows a shift in leadership at the RBI, with Sanjay Malhotra taking over as governor. It also comes at a time when economic growth is slowing, prompting the central bank to ease financial constraints while still maintaining risk oversight.
This change aligns with recent RBI decisions to defer stricter capital and liquidity requirements for new project loans and digital deposits, signaling a more balanced approach to credit regulation.
With these adjustments, the RBI aims to support financial institutions in lending to microfinance borrowers and NBFCs, while ensuring continued stability in India’s financial ecosystem.
