February 27, 2025 - The Reserve Bank of India (RBI) has provided relief to Non-Banking Financial Companies (NBFCs) and microfinance institutions that disburse small loans. The risk weight requirement on microfinance loans has been reduced by 25%, bringing it down to 100%.

This change comes as the Central Bank postponed new capital and liquidity plans, aligning with a leadership transition as the new RBI governor Sanjay Malhotra takes over.

This move will enable NBFCs and microfinance units to have more funds available for lending, meaning they will be able to disburse larger loans. The reduction in the risk weight means that these companies will need to set aside a smaller amount as security for the loans, increasing their lending capacity.

In November 2023, the RBI had tightened lending rules by raising the risk weight on microfinance loans to 125%.  The risk weights on consumer credit, including personal loans, but excluding housing loans, education loans, vehicle loans and loans secured by gold and gold jewellery, too was increased to 125 per cent. This had slowed down the loan disbursement pace for both microfinance institutions and those providing small loans.

“On a review, it has been decided to restore the risk weights applicable to such exposures...," the RBI said in circular.