Foreign banks seek lower risk weight for MNCs, easier priority sector norms
October 12, 2025
Foreign bank CEOs met with RBI Governor Sanjay Malhotra, proposing reduced risk weights for unrated multinationals and doubling agriculture loan limits via NBFCs. They also sought easier priority sector norms for foreign banks with over 20 branches, suggesting an expansion of export credit leeway. The RBI governor pledged to review these suggestions.
Synopsis
Foreign bank CEOs met with RBI Governor Sanjay Malhotra, proposing reduced risk weights for unrated multinationals and doubling agriculture loan limits via NBFCs. They also sought easier priority sector norms for foreign banks with over 20 branches, suggesting an expansion of export credit leeway. The RBI governor pledged to review these suggestions.
Reducing risk weights for unrated multinational companies, doubling the amount of agriculture loans that can be done by on-lending to non-banking finance companies (NBFCs), and easier priority sector norms are some of the recommendations made by foreign bank CEOs in their first formal meeting with Reserve Bank of India (RBI) governor Sanjay Malhotra recently.
About 14 foreign bank CEOs attended a face-to-face meeting at the RBI headquarters to provide feedback and suggest ways to ease business for these lenders in India.
"Suggestions were given and have been followed up with formal emails to RBI," said a person aware of the details.
"Banks have argued that lending to large multinationals which have a strong international rating cannot be at a stringent 150% risk weight just because they are not rated locally." Risk weights is the amount of capital lenders have to keep aside to cover for credit risk from a particular loan segment. Higher a risk weightage, the greater the capital lenders need to set aside for the loans.
Risk weights for domestic corporate loans depend on the company's ratings. For instance, BBB-rated corporate loans attract a 100% risk weight while it is 30% for AA-rated loans. Unrated corporate exposures of more than Rs 200 crore or those previously rated but currently unrated attract a penal 150% risk weight.
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Foreign banks want this risk weight to be lowered and treated on par with the companies' parent rating so they can lend to their multinational clients even in India at competitive rates.
A spokesperson for RBI did not respond to an email query seeking comment.
"Another suggestion was to ease priority sector guidelines particularly for foreign banks with more than 20 branches because treating them on par with the local lenders is not fair. Foreign banks with less than 20 branches have leeway in meeting their commitments through export credit; this can be extended to a cutoff higher than 20 branches," said a second person aware of the suggestions.
Under the RBI's priority sector lending mandate, foreign banks with 20 or more branches and all locally-incorporated banks have to lend 40% of their net bank credit to sectors like agriculture, MSMEs, and economically backward groups.
Foreign banks with fewer than 20 branches also have this 40% target but are allowed up to 32% for export credit which the lenders want to be expanded to a larger set of banks.
"Also, there is a 5% priority sector limit for loans given through NBFCs for foreign banks which they would like to double," said the second person cited above.
Foreign banks have also suggested that the transition to a bank.in internet domain mandated to all banks in India may be excluded for the non-retail facing lenders since they do not have a large network in India.
Governor Malhotra heard the suggestions and promised to look into them.
"Clearly, bankers like their chances with this governor, given his track record and all out support for growth," said a third person aware of the deliberations.
He was referring to Malhotra prioritising growth with easier guidelines on project finance, and also the recent expected credit loss (ECL) framework which will be implemented only from April1 2027 and that too after a five-year glide path starting this year until March 2031 so that additional provisioning can be made if required.
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Foreign bank CEOs met with RBI Governor Sanjay Malhotra, proposing reduced risk weights for unrated multinationals and doubling agriculture loan limits via NBFCs. They also sought easier priority sector norms for foreign banks with over 20 branches, suggesting an expansion of export credit leeway. The RBI governor pledged to review these suggestions.
Reducing risk weights for unrated multinational companies, doubling the amount of agriculture loans that can be done by on-lending to non-banking finance companies (NBFCs), and easier priority sector norms are some of the recommendations made by foreign bank CEOs in their first formal meeting with Reserve Bank of India (RBI) governor Sanjay Malhotra recently.
About 14 foreign bank CEOs attended a face-to-face meeting at the RBI headquarters to provide feedback and suggest ways to ease business for these lenders in India.
"Suggestions were given and have been followed up with formal emails to RBI," said a person aware of the details.
"Banks have argued that lending to large multinationals which have a strong international rating cannot be at a stringent 150% risk weight just because they are not rated locally." Risk weights is the amount of capital lenders have to keep aside to cover for credit risk from a particular loan segment. Higher a risk weightage, the greater the capital lenders need to set aside for the loans.
Risk weights for domestic corporate loans depend on the company's ratings. For instance, BBB-rated corporate loans attract a 100% risk weight while it is 30% for AA-rated loans. Unrated corporate exposures of more than Rs 200 crore or those previously rated but currently unrated attract a penal 150% risk weight.
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Foreign banks want this risk weight to be lowered and treated on par with the companies' parent rating so they can lend to their multinational clients even in India at competitive rates.
A spokesperson for RBI did not respond to an email query seeking comment.
"Another suggestion was to ease priority sector guidelines particularly for foreign banks with more than 20 branches because treating them on par with the local lenders is not fair. Foreign banks with less than 20 branches have leeway in meeting their commitments through export credit; this can be extended to a cutoff higher than 20 branches," said a second person aware of the suggestions.
Under the RBI's priority sector lending mandate, foreign banks with 20 or more branches and all locally-incorporated banks have to lend 40% of their net bank credit to sectors like agriculture, MSMEs, and economically backward groups.
Foreign banks with fewer than 20 branches also have this 40% target but are allowed up to 32% for export credit which the lenders want to be expanded to a larger set of banks.
"Also, there is a 5% priority sector limit for loans given through NBFCs for foreign banks which they would like to double," said the second person cited above.
Foreign banks have also suggested that the transition to a bank.in internet domain mandated to all banks in India may be excluded for the non-retail facing lenders since they do not have a large network in India.
Governor Malhotra heard the suggestions and promised to look into them.
"Clearly, bankers like their chances with this governor, given his track record and all out support for growth," said a third person aware of the deliberations.
He was referring to Malhotra prioritising growth with easier guidelines on project finance, and also the recent expected credit loss (ECL) framework which will be implemented only from April1 2027 and that too after a five-year glide path starting this year until March 2031 so that additional provisioning can be made if required.
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