NEWS

RBI ups risk weights on consumer loans

RBI increases risk weights with respect to consumer credit exposure of commercial banks and NBFCs by 25% to 125%.

The Reserve Bank of India (RBI) has increased the risk weights with respect to consumer credit exposure of commercial banks and non-banking financial companies (NBFCs) by 25% to 125%.

While the credit card receivables for banks will attract a risk weight of 150%, those by NBFCs will have a risk weight of 125%. Earlier, the risk weights were 125% and 100%, respectively.

The hike includes personal loans but excludes housing, education, vehicle and gold-backed loans. The microfinance and self-help group (SHG) loans by NBFCs are excluded from this.

Risk weights will imply that banks and NBFCs will have to set aside a higher amount of capital for outstanding as well as new exposures. The higher a risk weightage, the more amount of capital will be needed to set aside by lenders for the loans.

Credit growth in unsecured loans has been at about 23%. The overall credit growth is at an average of 12-14%, according to the RBI. 

Last month, RBI Governor Shaktikanta Das advised banks and NBFCs to strengthen their internal surveillance mechanisms and address the build-up of risks, if any, in their own interest.

The RBI has asked regulated entities (REs) to review their extant sectoral exposure limits for consumer credit and put in place board-approved limits in respect of various subsegments under consumer credit as may be considered necessary.

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