New Delhi, Feb. 27 -- The Reserve Bank of India's decision to ease rules on bank loans to non-banking financial companies (NBFCs) has been driven by a slowdown in credit flow to these entities, which have been facing a funding crunch amid systemic liquidity deficit and rising asset quality stress in small-ticket and microfinance loans, analysts said.

On Tuesday, the central bank reversed the increase in risk weight - or the capital that banks must set aside for every loan to cover for potential loss - on loans to NBFCs, in a move that's expected to make it easier for banks to boost on-lending, which has been constrained by higher capital requirements.

"Lending to NBFCs constitutes 9% of overall banking system credit. Revision in risk we...