Key Points
The RBI has increased the risk weight on consumer credit from 100% to 125% in response to the surge in unsecured loans in recent years..
All regulated entities have been instructed to comply with the new rules by February 29, 2024, resulting in higher costs for unsecured lending...
Secondly, the increase in risk weights on regulated entities' unsecured personal loan exposure may affect the capital buffers of NBFCs, resulting in a slowdown in lending in the near term...
As for the interest rates of personal loans, Raoul Kapoor, Co-CEO, of Andromeda Sales and Distribution states that the increase in risk weightage typically makes small-ticket personal loans, particularly those offered by NBFCs, more expensive for lenders..
The higher cost of capital, due to the risk-weight increase for both NBFCs and banks, along with an increase in banks' deposit rates and NBFCs' borrowing costs, will push up interest rates in this segment..
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