The Reserve Bank of India (RBI) is planning to tighten the rules for personal loans that are given without any security, such as credit cards and unsecured personal loans.
The risk of people not repaying these loans is increasing, which has raised concerns for the RBI. In November 2023, the RBI had already raised the risk weight for such loans from 100% to 125%, but stricter measures are now needed.
RBI is concerned about this growing risk. In November 2023, the RBI had already increased the risk weight on such loans from 100% to 125%, but now stricter measures are needed.
Loans linked to credit score
RBI has directed banks to strengthen their loan policies. The maximum loan amount will now depend on the borrower’s credit score. If someone already has a home loan or car loan, banks must be more careful before approving a personal loan.
RBI’s concern over rising retail loans
According to NDTV Profit, which spoke with several banks, RBI is worried about the fast rise in retail loans and the risks that come with them.
In March 2024, personal loans grew by 14% compared to 17.6% in March 2023. Private banks are still issuing these loans actively, while public sector banks are more cautious.
Main points from RBI’s report
The RBI’s Financial Stability Report released in December 2023 showed a sharp increase in loan write-offs by private banks, indicating higher risk.
RBI’s upcoming move
The RBI is likely to release a draft of new guidelines within the next 15 days. Banks will be expected to lend more carefully and only to borrowers who meet the criteria. The goal is to stop people from borrowing too much and to protect the overall banking system.
