What changed
RBI amended the 2007 Prudential Norms Directions for NBFC-MFIs to insert two new provisions. First, for loans guaranteed by CRGFTLIH, NBFC-MFIs may assign zero risk weight to the guaranteed portion, with the excess attracting standard risk weights. Second, if such an advance becomes non-performing, no provision is required for the guaranteed portion; only the unguaranteed excess must be provisioned as per existing guidelines.
What it means for you
This circular reduces capital and provisioning burden for NBFC-MFIs lending to low-income housing under CRGFTLIH guarantee. It aligns treatment with similar credit guarantee schemes (like CGTMSE) and encourages lending to this segment. Banks and NBFC-MFIs can now offer more competitive rates on such loans, knowing the guaranteed part carries no risk weight or provisioning cost.
What you must do
- Update internal prudential norms to assign zero risk weight to the CRGFTLIH-guaranteed portion of housing loans.
- Ensure provisioning policies reflect that no provision is needed on the guaranteed portion of NPAs; only the excess is provisioned as per standard norms.
- Train credit and risk teams on the distinction between guaranteed and unguaranteed portions for reporting and capital adequacy calculations.
- Review existing low-income housing loan portfolios to identify CRGFTLIH-backed advances and apply the new treatment.
Who it affects
NBFC-MFIs, Banks lending to low-income housing, Credit Risk Guarantee Fund Trust for Low Income Housing (CRGFTLIH), Risk management and compliance teams
What is CRGFTLIH and who set it up?
CRGFTLIH stands for Credit Risk Guarantee Fund Trust for Low Income Housing, set up by the Ministry of Housing & Urban Poverty Alleviation, Government of India, in June 2012 to guarantee low-income housing loans.
Does this circular apply to all NBFCs or only NBFC-MFIs?
It applies specifically to NBFC-MFIs (Non-Banking Financial Company-Micro Finance Institutions) as per the notification. Other NBFCs are not covered.
What happens if the guaranteed portion exceeds the loan amount?
The circular states zero risk weight and no provisioning only for the guaranteed portion. Any amount outstanding beyond the guarantee is treated per standard risk weight and provisioning norms.