The Reserve Bank of India (RBI) has eased the credit concentration risk norms for non banking finance companies (NBFCs) in the middle layer (ML) and base layer (BL) bringing them on par with their larger peers or upper layer (UL) NBFCs.
In new directions 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 allowing NBFCs to reduce their concentration risk.
In a notification on its website, the RBI said that NBFC exposure to the central government, state governments which are eligible for zero percent risk weight under capital regulations, exposures where the principal and interest are fully guaranteed by the government of India will be among those that are exempt from concentration limits.
Cash margin or security deposit held as collateral on behalf of the borrower against the advances, central government guaranteed claims which attract 0% risk weight for capital computation and state government guaranteed claims which attract 20% risk weight for capital computation can also now be offset with the NBFC ML exposures.
Also, 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 National Credit Guarantee Trustee Company Ltd (NCGTC) will also be allowed to be exempt from NBFC ML exposure.
Also now 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, RBI said.
