RBI’s Risk Weight Hike: Implications for Incremental Bank Lending to NBFCs
The Reserve Bank of India (RBI) recently implemented a significant increase in risk weight for bank exposures to Non-Banking Financial Companies (NBFCs). This move is expected to have a notable impact on incremental bank lending to the NBFC sector. In this article, we will explore the implications of the RBI's decision and discuss the potential consequences for the lending landscape.
Key Points:
Decrease in Bank Loans to NBFCs:
As of January 2024, outstanding bank loans to NBFCs stood at Rs 15.03 trillion. However, in FY23, banks extended only Rs 3.08 trillion to finance companies, a significant decline compared to the previous year's Rs 73,831 crore. This downward trend can be attributed to various factors, including the tightening of risk weights by the RBI.
Projections for FY25:
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