Rates on personal loans have been raised by the Reserve Bank of India. The risk factor is now 25% more important than it was before the guidelines were altered. Certain consumer loans, such as mortgages, student loans, and car loans, are exempt from the new regulations.
On Thursday, the Reserve Bank of India tightened regulations concerning personal loans that banks and non-banking financial firms (NBFCs) deem to be high-risk. The risk factor is now 25% more important than it was before the guidelines were altered. In light of the findings of the review, the RBI has decided to enhance the risk weight associated with the risk of the loan case. The Reserve Bank of India has raised the risk weight for banks and NBFCs by 25%, to 150% and 125.0%, respectively, under this plan.
Some consumer loans, including mortgages, student loans, and car loans, will be exempt from the new regulations. Loans secured by gold or gold jewelry are likewise exempt from this regulation. These mortgages will be assigned a 100% risk weight.
Explanation of “higher risk weight”
A greater risk weight indicates that banks will need to reserve a larger sum of money for unsecured personal loans. As a result, this burden limits the lending capacity of banks.
Recently, Reserve Bank Governor Shaktikanta Das mentioned a rise in the interest rates on several consumer loans. Financial institutions, including banks and NBFCs, were urged to improve internal monitoring in light of rising threats and to take precautions against them. During his meetings with the top brass at major banks and big NBFCs in July and August, Das brought up the rapid expansion of consumer loans and the growing reliance of NBFCs on bank credit.
There has been a drop in inflation, but the economy still faces challenges.
The combination of supply-side interventions and monetary policy actions has resulted in lower retail inflation. There is still a long way to go, and we are far from solving the problem. This is according to the November issue of the RBI bulletin, which was issued on Thursday. The global economy is exhibiting symptoms of slowing in the current quarter, according to a news item on the condition of the economy. The manufacturing industry is in decline. At the same time, it seems that the post-pandemic uptick in service sector activity has leveled out.
It was also noted that tightening financial conditions is a substantial danger to the global outlook. Those are the conclusions reached by the RBI committee headed by Deputy Governor Michael Debabrata Patra, as reported in their paper. However, RBI has made it abundantly apparent that the opinions presented in the essay are those of the writers and not RBI’s. The article goes on to say that the nation has a mild current account deficit and healthy foreign currency reserves. The rate of expansion is picking up speed. As a result, India’s GDP has risen beyond its pre-pandemic level, and it is now the world’s fifth-biggest economy.