RBI tightens norms on consumer loans, raises risk weight on credit exposure by banks, NBFCs to 125%
- RBI Bulletin: The central bank in its November bulletin highlighted that investment demand remains resilient on uptick in private capex and government spending.
The Reserve Bank of India (RBI) said in its latest November bulletin that it has increased the risk weights in respect of consumer credit exposure of commercial banks and non-banking finance companies (NBFCs) by 25 percentage points to 125 per cent. The credit card receivables for banks will attract a risk weight of 150 per cent, while those by NBFCs will attract a risk weight of 125 per cent, compared to 125 per cent and 100 per cent previously.
The central bank has increased the risk weight for consumer credit exposure, excluding housing, education, vehicle and gold-backed loans, to 125 per cent from 100 per cent earlier. ‘’The increase in the risk weights of consumer credit exposure of commercial banks (outstanding and new), includes personal loans, but excludes housing loans, education loans, vehicle loans and loans secured by gold and gold jewellery,'' said RBI.
For NBFCs, the increase in risk weight is extended to retail loans, excluding housing loans, educational loans, vehicle loans, loans against gold jewellery and microfinance/SHG loans, according to the central bank.
The move comes after RBI Governor Shaktikanta Das in the latest October monetary policy flagged the high growth in some components of consumer credit and advised banks and NBFCs to strengthen their internal surveillance mechanisms, address the build-up of risks, if any, in their own interest.
RBI's policy disinflationary to bring inflation under 4%
The RBI also said in its bulletin that the monetary policy is ‘actively disinflationary’ to bring the headline inflation under the 4 per cent target, while supporting domestic growth at the same time.
"We are not out of the woods yet and have miles to go, but (inflation) readings of around 5 per cent and 4.9 per cent in September and October, respectively, are a welcome relief from the average of 6.7 per cent in 2022-23 and 7.1 per cent in July-August 2023," the RBI said in its 'State of the Economy' article in the bulletin.
India's retail inflation eased to a four-month low of 4.87 per cent in October but remained above the RBI's 4 per cent target. The central bank expects inflation to average 5.4 per cent in 2023-24, however, it added that it remains vulnerable to recurring and overlapping food price shocks.
Also Read: RBI MPC Minutes: Inflation ruling above tolerance band, monetary policy to remain disinflationary
‘’Disinflationary monetary policy is working its way through the economy, steadily excoriating underlying inflationary pressures. Alongside, input costs are softening, as reflected in the sustained deflation in wholesale prices. Wage and rental pressures also remain muted. Fuel group prices went into deflation,'' said the RBI in its bulletin.
‘’Clearly, the only risk to the RBI’s resolve to align headline inflation with the target of 4 per cent is food inflation,'' said the central bank. Several constituent prices are already firming up – onions; tomatoes; cereals; pulses; and sugar – with the potential to disrupt the gains made in the last two months.
Food inflation, measured by the consumer food price index (CFPI), which accounts for nearly half of the overall consumer price basket, slowed to 6.61 per cent in October from 6.62 per cent in September, according to government data.
However, high onion prices still lend a risk on overall inflation levels, said analysts. Accordingly, the RBI is bracing up for upticks in the readings for November and December, it said in the bulletin.
The investment demand also appears to be resilient given the government's infrastructure spending and uptick in private capex, according to the RBI. The calibrated normalisation of surplus liquidity and robust credit growth strengthened transmission during the current tightening phase, although the transmission is still not complete.
In the October rate-setting meeting, Shaktikanta Das-led rate-setting panel kept the repo rate unchanged at 6.5 per cent. The MPC had also decided to remain focused on withdrawal of accommodation - with five out of six members voting in favor, to ensure that inflation progressively aligns to the target, while supporting growth.
The next RBI monetary policy meeting is scheduled during December 6-8, 2023.
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Business NewsEconomyRBI tightens norms on consumer loans, raises risk weight on credit exposure by banks, NBFCs to 125%
First Published:16 Nov 2023, 04:48 PM IST
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