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  »   Current Affairs   »   RBI Ups Consumer Loans’ Risk Weights

RBI Ups Consumer Loans’ Risk Weights

November 17, 2023

GS Paper III Indian Economy

Context:

  • Recently, the Reserve Bank of India raised risk weights on consumer loans, credit card exposures, and loans to non-bank financiers by 25 basis points.

Background

  • Concerns of High Growth: RBI’s response to abnormally high growth in unsecured lending portfolios of banks and NBFCs.
  • Sharp Rise: Unsecured loans, especially personal loans and credit cards, surpassed overall bank credit growth by approximately 15% in the past year.

consumer loans

About the News Guidelines:

  • The RBI increased the risk weights for banks and NBFCs by 25 percentage points to 125% on retail loans.
    • Risk Weights: The capital that banks need to set aside for every loan.
  • Applicable Loans
    • Banks: New risk weight applies to personal loans.
    • NBFCs: Applies to retail loans, excluding housing, education, vehicle loans, and loans secured by gold and gold jewellery.
  • Specific Changes
    • Credit Card Exposures: Risk weights increased by 25 percentage points to 150% for banks and 125% for NBFCs.
  • Additional Guidelines
    • Board-Approved Limits: Requirement for all banks and NBFCs to establish board-approved limits for unsecured consumer credit exposures.
    • Treatment of Top-Up Loans: Top-up loans against depreciating movable assets (e.g., vehicles) are considered as unsecured loans for credit appraisal and exposure purposes.

News Source: Livemint

 

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