Regulatory scrutiny by the Reserve Bank of India (RBI) has increased sharply over the past years and on par with universal banks
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ANUSHREE FADNAVIS
Non-banking finance companies (NBFCs), especially the ones classified under upper-layer category, are seeking lowering of risk weights across loan categories, saying regulatory scrutiny by the Reserve Bank of India (RBI) has increased sharply over the past years and on par with universal banks.
“Large NBFCs’ regulatory scrutiny has increased sharply. We have to mark higher risk-weights across loan categories in comparison to banks, while also making higher provisions as we follow the ECL model and also maintain higher capital adequacy ratio,” said a senior official at a large NBFC, adding that NBFCs have nudged the regulator about lowering risk weights in their last meeting with the RBI Governor Sanjay Malhotra.
According to Ajit Velonie, Senior Director at Crisil Ratings, NBFCs assign 100 per cent risk weight on most retail loan categories (except housing loans) such as vehicle loans, MSME/ loan against property and loans against gold jewellery, while banks assign 75 per cent on the same loans which qualify as regulatory retail portfolio.
“In corporate loans, too, banks assign 20 per cent risk weight on AAA rated corporates, 30 per cent on AA corporates and 50 per cent on A-rated corporates, while for NBFCs there is no linkage to ratings, and they assign 100 per cent on corporate loans,” added Velonie.
NBFCs have been seeking a rejig in risk-weights, especially on retail loans, as such loans form around 90 per cent of industry assets under management. With enhanced regulatory scrutiny and strong buffers, NBFCs are asking the regulator to take a relook and harmonise NBFCs’ risk-weights for some retail lending segments.
Funding aid
NBFCs have long been demanding a dedicated re-finance window — similar to the National Housing Bank (NHB) for housing finance companies (HFCs) — and approval for large NBFCs to accept public deposits, a licence which the RBI has not granted to any large NBFC since decades.
A host of NBFC sector officials say that large institutions such as Employees’ Provident Fund Organisation (EPFO) and Pension Fund Regulatory and Development Authority (PFRDA) tend to invest primarily in Central or State government securities. Within corporates, it is primarily in non-convertible debentures (NCDs) issued by large-sized, AAA- or AA-rated NBFCs.
“Funding from banks for NBFCs overall had squeezed after the RBI hiked risk-weight on bank loans to NBFCs [which has now been rolled back]. However, we have seen an increase in bank lending to NBFCs over last three months. On the other hand, funds raised through other avenues such as NCDs remains a challenge for many A- or BBB-rated entities,” said Velonie.
This is largely due to stricter investment guidelines governing insurance and pension funds. Even mutual funds do not invest in lower than AA rated NBFCs’ NCDs as their credit risk factor could rise.
Published on March 8, 2026
