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Non-banking finance companies (NBFCs) in India have underlined the risk of collateral damage with respect to the RBI’s new lending norms, Times of India said in a report on November 24.

In a written communication to the apex bank, NBFCs — lend to small businesses and provide secured loans — have sought lower risk weightage on bank loans sanctioned to them. They have also requested an appointment with the RBI.

It may be mentioned here that while the regulator has raised risk-weights on consumer loans for all lenders, it is a double whammy for finance companies as RBI has also increased the risk weight on bank loans to NBFCs. The higher risk weightage will also make it hard for NBFCs to sell their loans to banks.

The Finance Industry Development Council (FIDC), a consortium of Non-Banking Financial Companies (NBFCs), has expressed concerns over the new norms. It said that while these rules help banks and NBFCs by enhancing safeguards, they could negatively impact small businesses. The FIDC has urged the _regulator to reassess the significant increase in risk weights assigned to bank loans to NBFCs.

This measure has the unintended consequence of potentially reducing the flow of credit to MSMEs, self-employed individuals, and other sectors that heavily rely on credit from NBFCs, Mahesh Thakkar, the Director General of FIDC, said.

The FIDC said it appreciated RBI’s decision to implement measures addressing high growth in certain components of consumer credit. It also backed the move to differentiate between consumption-oriented credit and credit for industrial and commercial growth.

“This would redirect credit flow towards capital expenditure and aid in a greater degree of funds flow towards meeting working capital needs, especially of the MSME and self-employed sectors,” it said.

“Loan sell-down by personal loan NBFCs amounted to about Rs 1,150 crore in FY23 and had already crossed Rs 800 crore in H1 FY24,” the ToI report quoted Abhishek Dafria, senior vice president at Icra, as saying.

The future sale of personal loans by NBFCs to banks may face challenges, Dafria told the newspaper. “While direct assignment transactions are expected to slow down, RBI’s concerns over the personal loan segment may impact even the sale of pass-through certificates where additional capital norms do not apply,” he said.

  • Published On Nov 25, 2023 at 07:51 AM IST

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