In a recent notification, the central bank stated that exposures guaranteed under ECLGS 5.0 will have a risk weight of 0% for up to 75% of the guaranteed amount, as long as the settlement sum is anticipated to be received within 30 days from the guarantee invocation date.
“The remaining exposure will be subject to risk weights according to current guidelines,” the RBI noted in its update to the Reserve Bank of India (Commercial Banks – Prudential Norms on Capital Adequacy) Directions, 2025.
This amendment is effective immediately.
Risk weights dictate the quantity of regulatory capital banks must allocate against their assets. A lower risk weight decreases the capital requirement for lenders, potentially enhancing their capital position and boosting their ability to provide credit.
This action follows a circular from the National Credit Guarantee Trustee Company (NCGTC) issued on May 8 regarding ECLGS 5.0, the newest version of the government’s credit guarantee initiative.
The Emergency Credit Line Guarantee Scheme was originally introduced by the government during the Covid-19 crisis to deliver emergency credit assistance to businesses, especially micro, small, and medium enterprises (MSMEs), by providing sovereign-backed guarantees on additional loans from banks and other lenders.
The latest RBI amendment offers regulatory clarity on the capital treatment of loans included in ECLGS 5.0 and is anticipated to reduce the capital charge on eligible guaranteed exposures.
By assigning a zero-risk weight to a major portion of the guaranteed exposure where claim settlement is expected within 30 days of invoking the guarantee, the central bank aligns the prudential treatment of such loans with the credit protection afforded by the scheme.
This notification was issued under Section 35A of the Banking Regulation Act, 1949, and constitutes part of the Ninth Amendment to the RBI’s prudential norms on capital adequacy for commercial banks.
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First Published: Jun 17, 2026 7:50 AM IST
