The move will slow down growth in consumer credit and adversely impact the earnings of banks and NBFCs.
- RBI raises risk weight on consumer loans
- Credit card receivables will require higher capital
- Bank lending to NBFCs will turn costly
- RBI’s move is to tackle runaway growth in consumer credit
- The banking system advances growth will decelerate
The Reserve Bank of India has tightened the capital requirement norms for consumer lending and bank’s lending to NBFCs amid growing credit demand in these segments.
This was anticipated as the regulator had earlier flagged concerns over the runaway growth in unsecured credit in the past few years.
The move will surely slow down the growth in consumer credit and adversely impact the earnings of banks and NBFCs.
Consumer loans and credit card receivables to attract higher risk weight
The regulator increased the risk weights on consumer/personal loans extended by banks and non-bank finance companies (NBFC) from 100 percent to 125 percent. The higher risk weights will be applicable on all outstanding as well as new consumer credit exposure. Consumer credit consists of unsecured personal loans and excludes housing loans, educational loans, vehicle loans, loans against gold jewellery, and micro-finance loans.