RBI tightens capital norms for unsecured retail loans

Team Blitz India

NEW DELHI: Reserve Bank of India (RBI) r on Thursday slammed the brakes on the unbridled growth in consumer loans that lately expanded faster than less risky lending assets, directing banks to set aside more capital and establish board-monitored processes on such advances to prevent risk escalation in the financial system.

The(RBI) increased risk weights on consumer loans from banks, non-banking finance companies (NBFCs) and credit card providers, making it more expensive for lenders across the spectrum to offer loans in these segments. That will mean higher interest rates for all borrowers.

Furthermore, bank lending to NBFCs will also become more expensive as risk weights on these loans have also been raised beyond a specified threshold.

The new risk weighting will apply to all existing loans in the consumer segment as well, potentially requiring banks to advance their capital-raising timelines as they need more money now as cover against risky exposure.