NEW DELHI: The Reserve Bank of India (RBI) has made a crucial shift in its regulatory stance to ease liquidity challenges and support banks, NBFCs, and MFIs. These actions reflect a pro-growth agenda, especially in consumer and rural sectors.
In a major relief, the RBI has reversed the risk weight hike on NBFCs. The risk weight, raised to 125% in November 2023, is now back to 100%. For MFIs, the central bank clarified that risk weight will remain at 100%. If classified as regulatory retail, it will drop to 75%. This move will boost capital availability and support lending.
According to rough estimates, this will have a positive impact of 5-200 basis points on banksโ capital bases. The biggest gainers include Bandhan Bank, IndusInd Bank, and RBL Bank. NBFCs and MFIs, struggling with high funding costs, will also benefit.
Over the past few months, the RBI has eased several regulatory burdens. It has postponed key rules on ECL, LCR, and project finance. These measures were seen as necessary under current economic conditions.
The series of steps signals a shift from tight regulations to a more supportive approach. This will help banks navigate liquidity challenges and shifting interest rates. The RBIโs pro-growth stance is expected to boost lending and economic activity.
However, some concerns remain. The asset quality of MFIs still poses risks. While easing rules will support credit growth, banks must manage risks carefully. Despite the relief for NBFCs, credit card and personal loan risk weights remain unchanged.
There is also speculation that RBI may ease restrictions on CD ratios. This could benefit private banks struggling with slow deposit growth. If this happens, it may further boost loan growth and economic activity.
Elara Capitals shared its views and showed optimism, โA year ago, banks faced tight regulations, liquidity issues, and asset quality worries. Now, the situation is improving. The RBIโs recent actions indicate a clear effort to support the banking system. The accommodative policy, liquidity support, and relaxed rules are positive signs for the sector.
โWith valuations still attractive, private banks may see renewed investor confidence. The central bankโs approach suggests a steady move toward growth, balancing caution with support.โ The Elara report highlights.
