Harmonising computation for concentration limits across NBFCs

– Kaushal Shah, 

Reserve Bank of India (RBI) has recently announced amendments to the Credit and Investment concentration norms, specifically targeting Base and Middle Layer Non-Banking Financial Companies (NBFCs). The circular, dated January 15, 2024, brings about notable changes aimed at ensuring uniformity and consistency across NBFCs while computing the concentration norms. 

What has RBI done?

For Middle Layer NBFCs (NBFC-MLs) :

  1. In addition to the use of Credit Default Swaps (‘CDS’), RBI has now allowed NBFC MLs to offset the aggregate exposure with the following additional Credit Risk Transfer (CRT) instruments: 
  • Cash margin/caution money/security deposit held as collateral on behalf of the borrower against the advances for which right to set off is available;

It is pertinent to note that, as per para 84 of the SBR Directions, already requires the NBFC for the purpose of assignment of risk weight to net off the amount of cash margin/ caution money/security deposits held as collateral against the advances out of the total outstanding exposure of the borrower. 

  • Central Government guaranteed claims which attract 0 per cent risk weight for capital computation;
  • State Government guaranteed claims which attract 20 per cent risk weight for capital computation; and 
  • Guarantees issued under Credit guarantee Schemes of Credit Guarantee Fund Trust for Micro and Small Enterprises, Credit Risk Guarantee Fund Trust for Low Income Housing and individual schemes under National Credit Guarantee Trustee Company Ltd
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