The Reserve Bank of India (RBI) is planning to tighten rules for unsecured loans, such as credit cards and personal loans, due to growing concerns over repayment risks.
In November 2023, the RBI increased the risk weight for these loans from 100% to 125%, but now stronger measures are needed as the risk continues to rise.
Loans Based on Credit Score
The RBI has instructed banks to adjust their loan policies. The maximum loan amount will now depend on the borrower’s credit score.
If a borrower already has a home or car loan, banks will need to be more cautious before approving a personal loan.
RBI’s Concerns About Rising Retail Loans
RBI is concerned about the rapid growth of retail loans and the associated risks.
According to NDTV Profit, personal loans grew by 14% in March 2024, down from 17.6% in March 2023. Private banks continue to lend actively, while public sector banks are more cautious.
Key Points from RBI’s Report
The RBI’s Financial Stability Report, released in December 2023, revealed a significant increase in loan write-offs by private banks, indicating a higher level of risk.
RBI’s Next Steps
The RBI is expected to release a draft of new guidelines within the next 15 days. Banks will be required to lend more carefully, ensuring borrowers meet specific criteria.
The aim is to prevent excessive borrowing and protect the banking system.
