RBI hikes risk weight by 25% on consumer credit exposure of banks and NBFCs

17 Nov 2023 , 12:01 PM

The Reserve Bank of India (RBI) said on November 16 that it has increased the risk weight on commercial banks’ and non-banking finance firms’ (NBFCs’) consumer lending exposure by 25%.

This was done after RBI Governor Shaktikanta Das highlighted the high growth in certain components of consumer credit in the October monetary policy, advising banks and NBFCs to strengthen their internal surveillance mechanisms, address any risk build-up, and institute appropriate safeguards in their own interest.

The rise in the risk weights of commercial banks’ existing and new consumer credit exposure includes personal loans but excludes house loans, school loans, car loans, and loans secured by gold and gold jewellery, according to the circular.

In the case of NBFCs, the risk weight has been increased to include retail loans, excluding house loans, educational loans, car loans, loans against gold jewellery, and microfinance/SHG loans.

In addition, the central bank increased the risk weight of credit card receivables of schedule commercial banks and NBFCs by 25%.

Previously, scheduled commercial banks (SCBs) were assigned a risk weight of 125%, while non-bank financial companies (NBFCs) were assigned a risk weight of 100%. After modification, it will be 150% for SCBs and 125% for NBFCs, respectively.

Furthermore, it increases the risk weight on SCBs’ exposures to NBFCs by 25%.

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