RBI Proposes Lower Risk Weights For High-Quality Infrastructure Project Loans By NBFCs

The Reserve Bank of India (RBI) has proposed a significant easing in capital requirements for non-banking financial companies (NBFCs) lending to well-performing infrastructure projects, a move aimed at reducing financing costs and encouraging private investment in the sector.

According to the draft guidelines, loans extended to “high-quality infrastructure projects”, defined as those that have completed at least one year of satisfactory operations after achieving the commercial operations date, will attract a lower risk weight.

For borrowers that have repaid at least 10 per cent of the sanctioned amount, the risk weight would fall to 50 per cent.

Where repayments are between 5 per cent and 10 per cent, the risk weight will be capped at 75 per cent, compared to the current 100 per cent.

According to the RBI proposal, Infrastructure projects that meet all the following criteria shall be

classified as high-quality infrastructure projects:

a) The infrastructure project has completed at least one year of satisfactory

operations post achievement of the date of completion of commercial

operations.

b) The exposure is classified as ‘standard’ in the books of the lender.

c) The obligor's revenue depends on one main counterparty, which shall be

a Central Government or a Public Sector Entity, and the contractual

provisions provide for certainty regarding payments from the counterparty, for eg. availability-based revenues or take-or-pay provisions.

d) The contractual provisions provide for a high degree of protection for

creditors, such as escrow of cash flows; legal first claim of the lender over

all movable and immovable assets; and protection of interest of the

creditors in case of early termination.

e) The obligor has sufficient internal or external financial arrangements to

cover current and future working capital and other funding requirements of

the project as per the assessment of the lender.

f) The obligor is restricted from acting to the detriment of the creditors, eg.

being restricted from issuing additional debt against the cashflows and

assets of the project without consent of the existing creditors.

The proposal follows the RBI’s recent Monetary Policy Committee announcement, which hinted at easing risk weight norms for operational infrastructure assets.

The regulator said the draft seeks to align risk weights with the actual risk characteristics of operational infrastructure projects, thereby promoting prudent capital allocation and more accurate risk assessment within NBFC lending frameworks.

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