The Reserve Bank s decision to tighten norms for consumer credit by raising risk weight for unsecured personal loans is likely to hit banks capital adequacy by 60 basis points, S&P Global Ratings said on Friday.
The move will curtail riskier bank lending to consumers and is expected to
Unsecured loans, though small in size, can pose a risk to the financial system if their expansion goes unchecked. The RBI observed an unusual growth of approximately 23 percent in unsecured loans, surpassing the country s average credit growth of 12-14 percent. This surge has even exceeded the overall bank credit growth of around 15 percent witnessed in the past year.
The RBI increased risk weights on unsecured personal loans, credit cards, and lending to nonbank finance companies (NBFCs) by 25 percentage points on Thursday. S&P Global Ratings noted that the move will likely lead to higher lending rates, lower credit growth, and an increase in the need for capital raising among weak lenders.
Get latest articles and stories on Latest News at LatestLY. The Reserve Bank's decision to tighten norms for consumer credit by raising risk weight for unsecured personal loans is likely to hit banks' capital adequacy by 60 basis points, S&P Global Ratings said on Friday. Latest News | RBI's Tighter Regulatory Risk Weight to Hit Banks' Capital Adequacy by 60 Bps: S&P.