Unsecured loans to become dearer

After cautioning banks and non-banking financial companies (NBFCs) on surging unsecured loans like personal loans and those on the credit card, the Reserve Bank of India (RBI) increased the risk weighting for such loans from 100 per cent to 125 per cent.

The risk weighting for bank loans to higher-rate NBFCs too has been increased by 25 percentage points.

The new norms, which take immediate effect, are applicable for new as well as outstanding loans. As the increase in risk weighting will mean banks have to set aside more capital while extending such loans, the lenders in turn could increase the lending rates on such products. Including personal loans, but excluding housing loans, education loans, vehicle loans and loans secured by gold and gold jewellery.

According to the RBI data, bank credit growth has been around 20 per cent, growth in loans on the credit card around 30 per cent, and personal loans around 25 per cent. Loan portfolios that are likely to be affected due to the increase in risk weighting are about 30 per cent of the bank’s retail portfoil, which was around `48.26 trillion at the end of September.

The larger message here seems to be on being proactive in exercising caution and strengthening internal surveillance. In the past, we’ve seen relatively high loan growth in certain segments being followed by NPAs going up.