the constant nudging of banks to lend more to nbfcs is in contrast to the global trend of authorities trying to break the linkages between banks and nbfcs it noted and argued that it increases the potential of risks in nbfcs spilling over to banks mumbai the recent steps by the reserve bank to encourage banks to increase lending to nonbanking finance companies and retail borrowers are likely to rise risks for the sector warns a reportearlier this month the central bank announced three major steps to encourage banks to lend more to liquidity starved nbfcsan increase in the singleexposure limit to 20 percent of tier 1 capital from 15 percent priority lending status for credit to nbfis for onlending to finance agriculture small businesses and homebuyers and a reduction in the risk weight for consumer loans except credit cards to 100 percent from 125 percent advt global rating agency fitch said wednesday these initiatives are designed to help keep credit flowing to the real economy amid growing signs of a slowdownaverting a significant slowdown would help borrowers and therefore the stability of the financial system but the measures could push up banks risk if these steps lead banks to accept higher credit risk than they previously had the appetite for the agency said read alsobudget scheme for liquidity support to nbfcs rolls outgovt may announce relief measures for nbfc sector the constant nudging of banks to lend more to nbfcs is in contrast to the global trend of authorities trying to break the linkages between banks and nbfcs it noted and argued that it increases the potential of risks in nbfcs spilling over to banks exacerbated by the limited capacity of the capital markets to provide extra funding to nbfcsthe parallel banking sector has been under significant funding pressure as investors shy away following the default of ilfs last september and the resultant troubles at dewan housing early this yearnbfc disbursements have declined steeply as a result with knockon effects to other sectors particularly consumption it notedreduced availability of financing has contributed to the slowdown in the auto sector with vehicle sales in july falling 31 percent the worst in two decadesome of the pressure on nbfis will be alleviated if banks start to direct more funding to them but we expect most of the benefit will go only to the strongest of them the agency said advt the reduction in the risk weight for consumer loans will give a small boost to banks regulatory capital ratios estimate 13 percentage points on average it saidthis will enable banks to lend slightly more for each unit of capital which would be positive for loan growth but negative for their overall credit profile if the extra lending is riskier than average the report said pti published on aug 14 2019 at 0406 pm ist telegram facebook copy link be the first one to comment comment now comments comment now read comment 1 all comments post post find this comment offensive choose