Micro finance, gold loan and consumer finance space to get boost by this step

On account of ease in bank exposure norms for the Non Banking Financial Companies (NBFC), the micro and consumer finance space would be able to provide borrowings at lower rates. The Reserve Bank of India (RBI) initiative to make risk weightage in line with the credit rating of the respective NBFCs improve flow to the sector and particularly high rated entities, which will boost the credit flow to the sector and lead to consumption financing. 

Speaking on thee matter Shailendra Kumar, CIO, Narnolia Financial Advisors Ltd told, "Current practice of 100 per cent risk weightage to all the lending by banks to NBFCs is set to change. Now the risk weightage will be in line with the credit rating of the respective NBFCs. This will make it easier for banks to increase lending to the NBFC space. Also better rated NBFCs will be able to increase their bank borrowings at better rates. This measure will particularly help higher rated NBFCs in micro finance space, gold loan and consumer finance space. Other important reforms are easing of corporate debt investment by FPIs and change in the definition of bulk deposit."

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Standing in sync with Shailendra Kumar of Narnolia Financial Advisors; Sanjay Chamria, VC & MD Magma Fincorp, "Linking of risk weights on the exposure to NBFCs will improve flow to the sector and particularly high rated entities, which will boost the credit flow to the sector and lead to consumption financing."

Hailing the RBI move Anindya Banerjee, Deputy Vice President — Derivative and Currency research at Kotak Securities told, "NBFC mess is threatening to knock growth further and create stress in the financial sector. In such a circumstance, RBI did what it can do and what was needed, that is, to become proactive."