Credit risk weight on exposure to increase by 25% for banks, NBFCs

NEW DELHI | Updated: 16 November, 2023 7:24 pm IST
Reserve Bank of India (TNI Photo By Amit Rawat)

NEW DELHI: The Reserve Bank of India (RBI) decided to increase the risk weight by 25 per cent on consumer credit exposure of commercial banks as well as non banking finance companies (NBFC), on Thursday.

Before the notification was made, the risk weight was slated at 100 per cent. However, following the development, it has been weighted at 125 per cent. As per the directive, commercial banks will face a higher risk weight on their consumer credit exposure, encompassing personal loans. Notably, this adjustment will not apply to housing loans, education loans, vehicle loans, and loans secured by gold.

“In terms of extant norms, NBFCs’ loan exposures generally attract a risk weight of 100 per cent. On a review, it has been decided that the consumer credit exposure of NBFCs (outstanding as well as new) categorised as retail loans, excluding housing loans, educational loans, vehicle loans, loans against gold jewellery and microfinance/SHG loans, shall attract a risk weight of 125 per cent,” the notice said.

This development arrives following RBI Governor Shaktikanta Das’ statement on October 6, when he flagged high growth in certain consumer credit components, while advising banks and NBFCs to strengthen their internal surveillance mechanisms. Das also highlighted the growing credit liabilities that had been witnessed in interactions with managing directors and chief executive officers of major banks and NBFCs in July and August.

On the other hand, credit card receivables for scheduled commercial banks are slated to increase by 25 per cent points slating them at 150 per cent, while NBFCs are scheduled to touch 125 per cent.

Furthermore, the bank has also decided to come up with more advanced credit management controls to limit consumer credits and implement approved limits for credit consumers.

“The REs shall review their extant sectoral exposure limits for consumer credit and put in place, if not already there, Board approved limits in respect of various sub- segments under consumer credit as may be considered necessary by the Boards as part of prudent risk management.”

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