The Reserve Bank of India issued new guidelines for keeping risk weights on bank lending to well-rated NBFC ( Non Banking Finance Companies). The new guidelines has eased the rules related to the risk weights which earlier made lending to NBFC’s tough.
The move will allow banks to lend more to certain NBFC as the lender now has to keep less money as risk weight. Because as per the banking norms, if a category of loan carries a higher risk factor then, the bank has to keep aside more money, taking the risk factor into cognizance.
Soon after the announcement shares of many NBFC’s has seen a surge. The shares of Manappuram Finance, L&T Finance and Muthoot Finance increased around 6% after the announcement of new guidelines by RBI. Earlier, NBFC’s were facing onus of higher borrowing cost due some defaults by IL&FS and others.
Apart from this the RBI also took decision regarding the Harmonization of different categories, under which NBFC’s were earlier categorized. “It has now been decided to harmonise major categories of NBFCs engaged in credit inter-mediation, viz., Asset Finance Companies (AFC), Loan Companies, and Investment Companies, into a single category. The proposed merger of existing categories would reduce to a large extent the complexities arising from multiple categories and also provide the NBFCs greater flexibility in their operations. It will cover 99% of the NBFCs by number,” RBI said.