The Reserve Bank of India on Tuesday eased certain rules for bank loans to small borrowers and non-bank lenders through two separate circulars, a move aimed at releasing more funds and boosting credit at a time when the economy is facing slowdown in  growth.

The central bank lowered risk weights for banks on consumer microfinance loans by 25 percentage points to 100%. This means banks will have to set aside less capital for such loans.

In 2023, the RBI had increased the risk weights for banks and non-banking financial companies (NBFCs), or the capital that banks need to set aside for every loan, by 25 percentage points to 125% on retail loans even as small personal loans saw a surge beyond comfort.

Though certain categories like housing loans had been excluded from the increased capital requirement at the time, micro credit was included.

In a separate statement on Tuesday, the central bank also said it was restoring risk weights applicable on banks' exposure to non-bank lenders based on their credit rating.

In November 2023, the RBI had raised the risk weight for non-bank finance companies by 25 percentage points if their external rating required banks to set aside less than 100% in risk capital.