Bank of India (RBI) issued two important directives that will have far-reaching consequences for the personal loan segment. One, it asked the country’s largest consumer goods financier Bajaj Finance Ltd to stop lending through two of its loan products. Two, it increased the risk weights— the money set aside by banks and non-banking financial companies (NBFCs) for loans to cover credit risk—in the personal and retail loan categories to 125% from the earlier 100%.
The directive in Bajaj Finance’s case stemmed from its violation of the central bank’s mandate to issue a ‘key fact statement’ to borrowers. The NBFC, as per RBI, did not issue ‘key fact statement’ got two of its products—a buy now pay later (BNPL) card, called Insta EMI, and through eCOM, a digital consumer loans financing facility. EMI is short for equated monthly installments.
Both the RBI measures aim to tighten the norms on unsecured loans, which have grown exponentially in the last few years. A report by Transunion Cibil shows that since January 2022, personal loans of less than ₹50,000 have accounted for approximately 25% of total origination volumes of all retail loans, which includes personal, education, travel, consumer durable, car and two-wheeler loans. Citing data from Crif highmark credit bureau, Reuters reported in October that loans of ₹10,000-50,000 grew 48% in fiscal 2023, while smaller loans below ₹10,000 grew 37%.Read more on livemint.com