Reserve Bank of India (RBI) on Thursday tightened norms related to unsecured lending portfolios of banks and non-banking financial companies (NBFCs) amid concerns of abnormally high growth in the loan categories.
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Indian banks have seen a sharp rise in unsecured loans – mostly personal loans and credit cards – that has outpaced the overall bank credit growth of about 15% over the past year, catching the Reserve Bank of India’s (RBI) attention.
The RBI increased the risk weights for banks and NBFCs – or the capital that banks need to set aside for every loan – by 25 percentage points to 125% on retail loans, it said in a release.
For banks, the new risk weight will apply to personal loans, and to retail loans for NBFCs, the RBI said adding that housing, education and vehicle loans as well as loans secured by gold and gold jewellery will be excluded.
RBI on Thursday increased risk weights on credit card exposures by 25 percentage points to 150% and 125% for banks and NBFCs, respectively.
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RBI Governor Shaktikanta Das said last month the central bank was closely monitoring some fast-growing personal loan categories for signs of nascent stress.
Subsequently, Reuters reported that the RBI was particularly concerned with the surge in tiny personal loans of up to Rs 10,000, taken for three to four months.
With inputs from Reuters
