The cost of a Business Loan depends on several factors, including the credit profile of the borrower, the funding costs of the lender and the overall risk associated with the loan. For NBFCs, another factor is the amount of capital they must maintain against different types of exposures.
The Reserve Bank of India (RBI) has revised its risk weight framework through a series of regulatory changes, with the latest changes taking effect from 1 April 2026. These norms determine how much regulatory capital NBFCs need to hold against different loan exposures. While risk weights do not directly set Business Loan interest rates, they can influence the cost and economics of lending, which may affect how NBFCs price loans.
Why Risk Weights Matter To A Business Loan Borrower
A risk weight is the percentage of a loan that an NBFC must set aside as capital to cover potential losses. On a ₹1 crore loan carrying a 100 per cent risk weight, the NBFC holds ₹15 lakhs in capital, based on the minimum capital adequacy ratio of 15 per cent that applies to most NBFCs. With a 75 per cent risk weight, the requirement decreases to ₹11.25 lakhs. The NBFC can then use this extra capital to price each new loan.
When the cost of holding capital falls, an NBFC can either deploy the freed capital into more business lending loans at the same rate or pass part of the saving to borrowers through a lower interest rate. Well-capitalised lenders in a competitive market do both.
RBI Risk Weight Changes Introduced in 2025 and 2026
In 2023, the tightening cycle increased risk weights for unsecured consumer credit, credit cards, and lender exposures to non-banking financial companies (NBFCs). Business Loans became more expensive because the capital cost embedded in each disbursal went up. Starting February 2025, the RBI reversed course.
| Change | Date | What it did |
|---|---|---|
| Microfinance risk weight reduction | February 2025 | Reduced risk weight on microfinance consumer credit from 125 per cent to 100 per cent, effective immediately |
| Exposure to NBFCs restored | 1 April 2025 | Risk weights on lender exposure to NBFCs rated A and above cut by 25 percentage points, reversing the November 2023 hike |
| Infrastructure risk weight framework | 1 January 2026 | Amended NBFC Concentration Risk Management Directions; introduced High-Quality Infrastructure Projects category |
| Repayment-linked risk weights | 1 April 2026 | 75 per cent risk weight if borrower has repaid at least 2 per cent of sanctioned debt; 50 per cent if repaid at least 5 per cent |
| Transition window | Till 31 March 2027 | NBFCs allowed to apply revised weights at the next review of an exposure |
The combined effect is a meaningful reduction in the capital NBFCs must set aside on eligible portfolios, which directly influences business lending loan pricing.
How The Reduction Flows Into Business Loan Pricing
An NBFC prices a Business Loan by adding four components: the cost of funds, the operating cost, a credit risk premium and a capital charge tied to the applicable risk weight. When the risk weight drops, the capital charge compresses.
| Loan category | Illustrative risk weight (pre-2025) | Illustrative risk weight (post-April 2026) | Directional pricing impact |
|---|---|---|---|
| Unsecured business lending loans to well-rated borrowers | 100 per cent | 100 per cent (unchanged) | Neutral |
| MSME Loan against property (LAP) | 75 per cent | 75 per cent (unchanged) | Neutral |
| Business lending loans backed by High-Quality Infrastructure Projects | 100 per cent | 50 to 75 per cent based on repayment record | Meaningful reduction possible |
| NBFC borrowings from lenders (funding cost input) | Higher post-Nov 2023 | Restored from 1 April 2025 | Broad reduction in NBFC cost of funds |
The impact on Business Loan pricing is not immediate. Existing loans are typically repriced at scheduled review dates, while pricing for new loans may adjust gradually as NBFCs incorporate changes in their capital requirements and funding costs. The broader lending trend, however, points to stronger NBFC credit growth. NBFC credit grew 17% year-on-year in H1 FY 2025–26, compared with 12% growth in overall credit. This growth reflects improving funding conditions and stronger capital positions across the sector.
What This Means For MSMEs And Mid-Sized Businesses
The MSME segment share of total institutional credit reached 17 per cent in FY 2024–25, with MSME Loan disbursals outpacing growth in other sectors. NBFCs have captured a meaningful portion of this expansion, with segment credit growing 12 to 18 per cent in FY 2025–26.
For an established MSME with a good repayment history, three changes may be possible over the next 12 to 18 months. Business Loans from well-rated NBFCs may become more affordable as lower capital requirements influence pricing. Loan approvals may also become faster as NBFCs have more capital available for lending. Borrowers who repay their existing loans on time may also get better pricing when their loans are reviewed, especially for secured MSME Loans where the revised risk-weight rules apply.
Even a modest reduction of 1 to 1.25 percentage points at review can compound into interest savings over a multi-year tenure, easing pressure on operating cash flow. When considering a new Business Loan, borrowers should assess how the loan amount, interest rate and tenure will affect their monthly cash flow. A Business Loan EMI calculator can help estimate the monthly EMI and understand the repayment commitment before applying.
What Borrowers Should Keep In Mind
The revised risk weight rules make a strong credit profile and timely repayments more important. Three factors can help:
- Maintain a strong credit profile: A good credit rating can help lenders assess your business as a lower-risk borrower and may support more competitive Business Loan pricing.
- Repay loans on time: Consistent repayment builds a strong credit history and can improve your position when lenders review existing loans or you consider new financing.
- Choose lenders carefully: Compare Business Loan offers from well-capitalised NBFCs to find suitable pricing and terms.
For businesses that need working capital, a flexible Business Loan option can help manage short-term cash flow needs. For example, Godrej Finance Limited offers Business Loans with flexi funds, where interest is charged only on the amount utilised. This can complement a term facility when working capital requirements fluctuate.
Final Thoughts
The 2026 risk weight framework is a technical instrument with a very practical downstream effect. Business Loan pricing is entering a phase where well-run NBFCs with strong capital positions can compete more aggressively on rate, and borrowers with clean records and eligible security types stand to benefit disproportionately. The window between now and March 2027, when the transition arrangements expire, is likely to see the sharpest movement. Borrowers who structure their next application around what these norms actually reward will pay less over the tenure than those who apply on habit.
