New Delhi, Feb. 25 -- Amid cries of deficit liquidity in the banking system and funding crunch for several small lenders, the Reserve Bank of India on Tuesday reduced the risk weights on bank loans to non-banking finance companies and microfinance loans.

The central bank has restored the risk weights on bank loans to NBFCs to the levels before they were hiked in November 2023. The RBI then raised risk weights on banks' exposure to NBFCs by 25 percentage points, over and above the risk weight associated with the given external rating.

The revised risk weights will be effective 1 April 2025.

"Significant slowdown in bank credit to NBFCs in the current fiscal, tighter market liquidity in general and, to prioritise credit flow to the under...