Brief Overview:
RBI through the ‘Regulatory measures towards consumer credit and bank credit to NBFCs’ dated 16th November 2023 (“Notification”), inter alia has increased the risk weight percentage for various credit exposures of commercial banks (“SCBs”) and non-banking financial companies (“NBFCs”) to strengthen their internal surveillance mechanisms, address the build-up of risks, and institute suitable safeguards.
Technical Details:
Increase in risk weight percentage:
| Credit Exposure |
Erstwhile risk weight percentage
|
Increased risk weight percentage | Inclusions/Exclusions |
| Consumer Credit Exposure of SCBs |
100%
|
125% | Excludes personal loans. Excludes housing loans, education loans, vehicle loans, and loans secured by gold and gold jewellery. |
| Consumer Credit Exposure of NBFCs |
100%
|
125% | Excludes housing loans, education loans, vehicle loans, loans secured by gold and gold jewellery and microfinance/Self Help Group (SHG) loans. |
| Credit card receivables of SCBs | 125% | 150% | – |
| Credit card receivables of NBFCs | 100% | 125% | – |
| SCB exposure to NBFCs (excluding CICs)
|
100% | 125% | Excludes loans to HFCs, and loans to NBFCs which are eligible for classification as priority sector. |
Strengthening credit standards:
4) treat top-up loans extended by REs against movable assets which are inherently depreciating in nature, such as vehicles, as unsecured loans for credit appraisal.
JC Key Takeaways
The regulations bought through the Notification might bring correction in the market and address concerns over high growth noticed in the consumer credit segment. This will increase cost of funds and market may see increase in interest rates.
For further details, please see:
https://rbi.org.in/Scripts/NotificationUser.aspx?Id=12567&Mode=0
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