What changed
The RBI has amended the capital adequacy norms for small finance banks, introducing a new paragraph that specifies the risk weight for exposures guaranteed under the Emergency Credit Line Guarantee Scheme (ECLGS) 5.0. The amendment attracts a zero percent risk weight to the extent of 75% of the guaranteed portion, where the settlement amount is expected to be received within 30 days. The remaining exposure will attract risk weight as per extant guidelines.
What it means for you
This amendment is expected to provide relief to small finance banks by reducing their capital requirements for ECLGS 5.0 exposures. It may also encourage small finance banks to lend more to MSMEs and other eligible borrowers under the ECLGS 5.0 scheme. However, the amendment may also increase the credit risk for small finance banks if the guaranteed portion is not settled within the specified timeframe.
What you must do
- Review the amended capital adequacy norms
- Assess the impact on your bank's capital requirements
- Consider lending more to MSMEs and other eligible borrowers under ECLGS 5.0
Who it affects
Small finance banks, MSMEs, Eligible borrowers under ECLGS 5.0
What is the risk weight for ECLGS 5.0 exposures?
Zero percent to the extent of 75% of the guaranteed portion
What is the settlement timeframe for the guaranteed portion?
Within 30 days from the date of invocation
What happens to the remaining exposure?
It attracts risk weight as per extant guidelines