Regardless of a restoration of threat weights on their loans to non-banking finance firms (NBFCs), banks are nonetheless cautious of lending to non-bank gamers which might be specializing in unsecured private loans and the microfinance section.
Among the many NBFCs, small and mid-sized gamers having decrease credit score scores and with unsecured mortgage books are those going through main challenges in elevating funds from banks.
In February this yr, the Reserve Financial institution of India (RBI) had slashed the danger weights of financial institution loans to NBFCs by 25 proportion factors relying on the scores. In November 2023, the regulator had elevated the danger weights on such exposures of banks by 25 proportion factors in instances the place the danger weight as per exterior ranking of NBFCs was under 100 per cent.
Danger weight refers back to the capital banks should maintain apart as provisioning to cowl any mortgage defaults.
“Banks are nonetheless reluctant to lend to NBFCs that are engaged in micro finance, shopper loans or private loans,” stated Shachindra Nath, founder and managing director, UGRO Capital Ltd, an NBFC specialising in MSME and small enterprise financing.
He stated UGRO continues to get funding from banks. The NBFC didn’t face any points even when the danger weights have been elevated.
“You might not see a pointy uptick within the mortgage disbursement to NBFC due to the reducing of threat weights. Regardless of threat weights, banks are constantly cautious of NBFCs, particularly mid and small-sized,” stated Prakash Agarwal, Companion, Gefion Capital Advisors, a capital and technique advisory agency.
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A lot of the small-sized NBFCs have a very good proportion of their mortgage portfolio in unsecured and semi-secured segments. These NBCFs have slowed down their lending, leading to a lower in demand for loans.
“In addition to, banks are additionally cautious of lending to NBFCs with decrease scores,” Agarwal stated.
It could possibly be famous that banks lending to the NBFC sector grew by 5.7 per cent as of March 21, 2025, from a development of 15.3 per cent as of March 22, 2024.
Analysts additionally stated that for the reason that revised threat weights on financial institution loans to NBFCs got here into impact from April 1, 2025, it’s too early to evaluate lenders’ curiosity in extending loans to the sector.