MUMBAI: The threshold for applying a 150 per cent risk weight on unrated exposures to corporates and non-banking financial companies (NBFCs) has been raised to ₹500 crore from the ₹200 crore proposed earlier, according to the final directions on Basel III capital charge for credit risk under the standardised approach, which will be implemented from April 1, 2027.
The draft guidelines issued by the Reserve Bank of India (RBI) in 2023 had proposed a lower threshold of ₹200 crore for higher risk weights on unrated exposures and included provisions for penal treatment of exposures that became unrated after previously being rated. The draft had also proposed the use of a Securities Contracts (Regulation) Act (SCRA)-based grading framework for unrated bank exposures and a separate commodity finance category under specialised lending.
The RBI has also withdrawn the provision requiring higher risk weights for exposures that were previously rated but subsequently became unrated.
For bank exposures, the RBI has discontinued the proposed SCRA-based grading framework for unrated exposures. Instead, it has prescribed a uniform risk weight of 100 per cent for long-term exposures and 50 per cent for short-term exposures. In the case of foreign bank branches in India, external credit ratings of the parent bank may be used to compute risk weights.
The regulatory retail exposure framework has been expanded to include all small businesses, including non-micro, small, and medium enterprises, with turnover of up to ₹500 crore on a standalone or group basis. The exposure limit for classification under regulatory retail has been increased to ₹10 crore per counterparty from ₹7.5 crore earlier.
In specialised lending, the RBI has removed the proposed commodity finance category. It has clarified that project finance and object finance exposures will continue to be governed by prescribed risk weights irrespective of exposure size. The criteria for classification of high-quality projects have also been revised.
For real estate exposures, the RBI has retained the existing risk weight framework. It has allowed upward revision in property valuation for new or additional loans, subject to a minimum five-year period from loan origination or possession. The minimum borrower contribution for commercial real estate and residential housing projects under the acquisition, development, and construction category has been set at 25 per cent of total project cost, including land.
Source: Millennium Post
