Credit Concentration Norms Eased By RBI For NBFCs

The Reserve Bank of India (RBI), on Monday, said that it has relaxed the credit concentration risk norms for non-banking finance companies (NBFCs) in the middle layer (ML) and the base layer (BL), bringing them on par with their larger peers or upper layer (UL) NBFCs.

In the new guidelines, which are effective immediately, exposures to state and central governments, security deposits of borrowers held as collateral, and national credit guarantee schemes, among others, have been exempted from concentration limits. This move will allow NBFCs to reduce their concentration risk. 

According to a notification on its official website, the RBI has stated that NBFCs' exposure to the central government and state governments are eligible for zero per cent risk weight under capital regulations, and exposures, where the principal and interest are fully guaranteed by the Government of India, will be exempt from concentration limits.

A cash margin or security deposit is held as collateral on behalf of the borrower against the advances. Central government-guaranteed claims, which attract a 0 per cent risk weight for capital computation and state government-guaranteed claims, which attract a 20 per cent risk weight for capital computation, can now be offset with the NBFC ML exposures. Additionally, guarantees issued under the Credit Guarantee Schemes of Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), Credit Risk Guarantee Fund Trust for Low Income Housing (CRGFTLIH) and individual schemes under the National Credit Guarantee Trustee Company (NCGTC) will also be exempt from NBFC ML exposure.

Moreover, the exposures where NBFCs have exceeded the prudential exposure limits during the year will be required to be disclosed in the notes to accounts in the annual financial statements, as per the RBI.