RBI's new governor is adopting a more consultative approach in important decisions, Nuvama Research claims
RBI, Nuvama Report on RBI Governor: The Reserve Bank of India (RBI) has adopted a more consultative approach under its new governor. Nuvama Research has said this in one of its reports. Let us know what has been said further about the governor of the central bank in the report.
The Reserve Bank of India (RBI) is also becoming more consultative in its approach with its new governor. Nuvama Research also opined as much in a study. Nuvama avers that it is seen from its recent step in eliminating the hike in risk weighting on loans advanced by non-banking finance companies (NBFCs) and microfinance institutions (MFIs).
The report pointed out that, in an interaction with the media on February 7 after the monetary policy announcement, the RBI governor and deputy governor had said that the central bank is unlikely to reduce the risk weight on NBFC loans due to interconnected risks. But in a contradiction with that argument, RBI later reduced the risk weighting on bank loans that are provided to NBFCs. The report suggested that the move apparently followed a series of meetings between RBI governor Das with bank as well as NBFC leaders.
"Under the new governor, the RBI is taking a more consultative approach than before...RBI has relaxed the risk weight on banks' NBFC loans, possibly following the governor's recent meeting with CEOs of NBFCs and banks. NBFCs may have sought this relaxation," said Nuvama Research.
The reduction in risk weight on FFIs will be beneficial for banks that have significant exposure to microfinance loans. However, the report said the impact on small finance banks (SFBs) will be limited as most SFBs have not increased the risk weight on these loans to 125 percent.
According to Nuvma, the relaxation in risk weights for NBFCs by RBI is expected to reduce their cost of funds (CoF), especially for those who are heavily dependent on bank borrowings. The move could provide much-needed relief to NBFCs, which have previously grappled with increased funding costs due to the tightening of regulations.
However, the Nuvma report cautions that despite this relaxation, banks may not aggressively increase NBFC lending, given the rising risks in the sector. According to the report, the relaxation on MFI loans is positive for the capital adequacy ratio (CAR) of banks. As such, the relaxation for NBFC loans is beneficial only for NBFCs, not banks.
