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The Reserve Bank of India (RBI) has eased the proposed risk-weight framework for infrastructure loans given by non-banking financial companies (NBFCs) after consulting the industry. The definition of high-quality projects now includes those generating revenue from concessions or contracts awarded by central or state governments, public sector entities, or statutory bodies. Repayment thresholds for lower risk weights have been significantly reduced, helping NBFCs manage capital requirements. Key safeguards, including termination protection clauses, remain unchanged. The new norms will take effect from April next year, with optional early adoption available.
The Reserve Bank of India has revised its earlier proposed risk-weight norms for infrastructure loans extended by non-banking financial companies, responding to feedback from the industry. The updated framework broadens the definition of high-quality infrastructure projects eligible for lower risk weights, now covering projects that earn revenue from concessions or contracts granted by the central or state governments, public sector undertakings, or statutory and regulatory bodies. Advertisement
Repayment thresholds for applying reduced risk weights have also been eased. Projects where at least 2% of the original sanctioned debt is repaid can now be assigned a 75% risk weight, down from the earlier proposed 5%. Similarly, the threshold for a 50% risk weight has been lowered to 5% from 10%. The regulator has clarified that repayments will continue to be a critical measure of risk reduction, rejecting industry calls to remove these thresholds entirely. Any additional debt taken on will be included in the calculation of repayment percentages.
NBFCs are allowed to adopt the revised risk weights either at the next review of exposure or by March 31, 2027, whichever comes first. The norms are set to become mandatory from April 1, 2026, unless an NBFC chooses to implement them earlier in full.
The RBI has also declined suggestions to link risk weights to credit ratings or extend the framework to projects still in the construction stage, citing scope limitations. Additionally, it retained termination protection clauses to safeguard lenders in case of early project termination, emphasizing the importance of these measures in maintaining financial discipline.
This move is part of the RBI's broader effort to align capital requirements with actual risk in infrastructure lending by NBFCs. By reducing repayment thresholds and broadening project eligibility, the regulator aims to ease capital pressure on lenders while maintaining critical risk safeguards.
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