RBI tightens norms for personal loans

Mumbai, November 16

The RBI on Thursday tightened norms for consumer credit as it asked banks and NBFCs to assign a higher risk weight for unsecured personal loans, a move aimed at making the lenders more cautious on such advances.

The risk weight on unsecured consumer loans has been raised by 25 percentage points.

Will not apply on home, auto loans

• The new norms, however, will not be applicable on housing loans, education loans, vehicle loans and loans secured by gold and gold jewellery
• A higher risk weight means lenders need to set aside more funds as a safety net for consumer loans, which could make such credit more expensive

The new regulations, however, will not be applicable on housing loans, education loans, vehicle loans and loans secured by gold and gold jewellery, the RBI said.

A higher risk weight means that lenders need to set aside more funds as a safety net for consumer loans, which could make the such credit more expensive. In simple words, a higher risk weight restricts banks’ lending capacity. The move comes within a month of RBI Governor Shaktikanta Das flagging concerns over a high growth seen in consumer credit segment.