Get ready to pay higher EMIs on unsecured personal loans

financialexpress.com:

As the Reserve Bank of India (RBI) has increased the risk weight on unsecured lending, including credit card receivables by banks and non-banking finance companies (NBFCs), interest rates on unsecured personal loans will go up. For those with a credit score below 750, the hike will be steeper. Borrowers will have to pay higher equated monthly installments, and even those eligible to obtain credit cards or personal loans may face stricter terms and conditions.

At present, the interest rate on personal loans is 10.5% to 17% and that of credit cards between 36% to 45%.

Lenders may reduce the supply of unsecured loans, especially those with a higher perceived risk, as they will need to allocate more capital to cover these loans. Experts say banks, especially those that are not heavy on unsecured advances, will continue to do business with eligible borrowers while recalibrating their priorities to higher risk weights. Banks that have a relatively higher percentage of unsecured advances on their books may take a cautious approach now.

Lenders will calibrate their priorities based on how the weight adjustment impacts them. Adhil Shetty, CEO, Bankbazaar.com, says banks with relatively higher exposure to unsecured loans will react more sharply than banks that don’t. “The impact of higher costs on unsecured loan products will be passed on to the borrowers. But this is also a very competitive market in which lenders will try to acquire low-cost funds through any channel available to them including via retail investors through deposits, bonds, and mutual funds,” says Shetty.

The hike in risk weight can make it challenging for individuals to obtain a personal loan and even those eligible will face stricter terms. “Online lending