Explained: How RBI tightening on unsecured loans can impact banks & NBFCs
Reserve Bank of India on Thursday decided to increase the risk-weights on unsecured credit and bank loans to non-banking financial corporations (NBFCs).
The increased risk-weight is applicable to outstanding as well as fresh loans, the central bank said.
While credit growth for the overall banking system has remained stable and healthy, certain components of personal loans are, however, recording very high growth, RBI Governor Shaktikanta Das had said in his previous policy statement.
Das further added that the central bank was closely monitoring for any signs of incipient stress.
Thursday’s decision was, therefore, somewhat on expected lines.
However, Dalal Street wasn’t very happy with the same and a kneejerk reaction was seen among NBFC stocks, with Bajaj Finance, One97 Communications, and SBI Cards and Payment Services shedding more than 2-5%.
Let’s understand a little more about what the implications of RBI’s move could be on the business.
What’s changed?
The risk-weights on banks’ unsecured personal loans and consumer durable loans have been increased to 125% from 100%, and that on credit cards have been increased to 150% from 125%.
Further, the risk-weights on NBFCs’ unsecured personal and consumer durables loans, and credit cards have been increased to 125% from 100%.
The risk-weights on loans by banks to NBFCs has been hiked by 25 percentage points, if the risk-weight is below 100%.
