Banks Remain Cautious in Lending to NBFCs Despite Risk Weight Restoration

Despite the RBI restoring risk weights on loans to NBFCs in February 2025, banks remain cautious about lending to smaller, lower-rated NBFCs, especially those involved in unsecured personal and microfinance loans. The RBI had previously increased risk weights in November 2023, but lowered them by 25 percentage points based on credit ratings in February. However, concerns persist due to the risky nature of unsecured lending. Experts say the reduction in risk weights may not significantly boost NBFC loan disbursements. Bank credit growth to NBFCs slowed to 5.7% as of March 21, 2025, from 15.3% a year earlier.