On Thursday, the Reserve Bank implemented stricter regulations for unsecured personal loans provided by both banks and non-banking financial companies (NBFCs). Under the revised norms, the risk weights for such loans have been raised by 25 percentage points.

However, these changes do not apply to specific consumer loans, including those for housing, education, and vehicles. Additionally, loans secured by gold and gold jewelry will maintain a 100 per cent risk weight.

In essence, a higher risk weight means that banks must set aside a larger financial buffer for unsecured personal loans, limiting their lending capacity. This move follows concerns raised by RBI Governor Shaktikanta Das about the rapid growth in certain segments of consumer credit. He advised banks and NBFCs to bolster their internal surveillance mechanisms, address risk accumulation, and establish appropriate safeguards.

The decision to increase risk weights for consumer credit exposure, excluding specified loans, by 25 percentage points to 125 per cent was made after a thorough review, as stated in a circular by the RBI. Additionally, the central bank raised the risk weights on credit receivables by 25 percentage points to 150 per cent and 125 per cent for banks and NBFCs, respectively.