What changed
Previously, only IDF-NBFCs could assign a 50% risk weight on bonds covering PPP and post-COD projects with over a year of commercial operation. Now, all Infrastructure Finance Companies (IFCs) can apply the same reduced risk weight to such assets. This was done via an amendment to the NBFC Prudential Norms Directions, 2007, inserting a new sub-para (14) in para 20.
What it means for you
IFCs can now lower their capital requirements for qualifying infrastructure assets, freeing up capital for further lending. This uniformity reduces regulatory arbitrage among different NBFC categories and encourages more financing for operational infrastructure projects. Banks lending to or investing in IFCs may see improved capital ratios of their counterparties.
What you must do
- Review your IFC's asset portfolio to identify PPP and post-COD projects that have completed at least one year of satisfactory commercial operations.
- Update risk-weighting models to apply 50% risk weight for such qualifying assets in capital adequacy calculations.
- Ensure compliance documentation reflects the amended para 20(14) of the NBFC Prudential Norms Directions, 2007.
- Communicate the change to credit and risk teams for consistent application across all eligible exposures.
Who it affects
All Infrastructure Finance Companies (IFCs), IDF-NBFCs (already had this benefit), Banks with exposure to IFCs, Regulatory compliance teams at NBFCs
Which assets qualify for the 50% risk weight under this circular?
Assets covering PPP (Public-Private Partnership) and post-COD (commercial operations date) projects that have completed at least one year of satisfactory commercial operations.
Does this circular apply to all NBFCs or only IFCs?
It applies specifically to Infrastructure Finance Companies (IFCs). IDF-NBFCs already had this benefit; now it is extended uniformly to all IFCs.
When did this change take effect?
The amendment was issued on May 30, 2012, and became effective immediately from that date.