The RBI has directed banks and NBFCs to maintain elevated capital buffers and has extended increased risk weight requirements to both existing and new credit exposures.
On Thursday, the Reserve Bank of India (RBI) implemented stricter regulations for the unsecured lending portfolios of both banks and non-banking financial companies (NBFCs) due to heightened apprehensions about the disproportionately high expansion in categories such as personal loans and credit cards, surpassing the overall bank credit growth of approximately 15% in the past year.
The Reserve Bank of India (RBI) has announced a 25 percentage point increase in risk weights for banks and NBFCs, raising the requirement to 125% for retail loans, excluding housing, education, and vehicle loans, as well as loans secured by gold and gold jewellery. The revised risk weights also apply to credit card exposures, with a 25 percentage point increase to 150% for banks and 125% for NBFCs, diverging from the existing norm of a 100% risk weight for NBFCs’ loan exposures.
According to the Reserve Bank of India (RBI) circular
According to the Reserve Bank of India (RBI), scheduled commercial banks (SCBs) and NBFCs, which currently have risk weights of 125% and 100%, respectively, for credit card receivables, will see an increase of 25 percentage points to 150% for SCBs and 125% for NBFCs. The RBI has mandated that all banks and NBFCs establish board-approved limits for unsecured consumer credit exposures, with a deadline for implementation by February 29, 2024. Furthermore, the RBI clarified that top-up loans provided by regulated entities against depreciating movable assets, such as vehicles, will be considered as unsecured loans for credit appraisal, prudential limits, and exposure purposes.
(RBI), scheduled commercial banks (SCBs) and NBFCs, which currently have risk weights of 125% and 100%, respectively, for credit card receivables, will see an increase of 25 percentage points to 150% for SCBs and 125% for NBFCs. The RBI has mandated that all banks and NBFCs establish board-approved limits for unsecured consumer credit exposures, with a deadline for implementation by February 29, 2024. Furthermore, the RBI clarified that regulated entities will consider top-up loans against depreciating movable assets, such as vehicles, as unsecured loans for credit appraisal, prudential limits, and exposure purposes.
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