What changed
Previously, risk weights for bank exposures to NBFC-IFCs were not explicitly linked to credit ratings. Now, banks must use ratings from SEBI-registered and RBI-accredited agencies to determine risk weights, aligning with the corporate bond framework. The prudential exposure limit remains at 15% of capital funds, with a 20% cap if funds are on-lent to infrastructure.
What it means for you
Banks must recalibrate capital adequacy calculations for NBFC-IFC exposures based on credit ratings, potentially lowering capital charges for highly rated IFCs. The 15-20% exposure ceiling provides clarity for infrastructure lending, encouraging banks to support the sector while managing concentration risk. Compliance with the New Capital Adequacy Framework's risk-weighting rules is now mandatory for these exposures.
What you must do
- Assign risk weights to NBFC-IFC exposures using ratings from SEBI-registered and RBI-accredited agencies, per the New Capital Adequacy Framework.
- Ensure exposure to any single NBFC-IFC does not exceed 15% of capital funds, or 20% if funds are on-lent to infrastructure.
- Update internal credit risk models and reporting systems to reflect rating-based risk weights for NBFC-IFCs.
- Review existing NBFC-IFC portfolios to verify compliance with the new risk-weight and exposure norms.
Who it affects
All commercial banks (excluding RRBs and LABs), NBFCs categorized as Infrastructure Finance Companies, Bank credit risk and compliance teams
What rating agencies are acceptable for determining risk weights?
Only rating agencies registered with SEBI and accredited by RBI can be used to assign risk weights to NBFC-IFC exposures.
Can the exposure limit exceed 20% of capital funds?
No, the maximum exposure to a single NBFC-IFC is 15% of capital funds, extendable to 20% only if the funds are on-lent to the infrastructure sector.