RBI tightens norms for personal loans and credit cards, raises capital requirements

The Reserve Bank of India (RBI) on Thursday tightened norms for personal loans and credit cards in the form of higher capital requirements.

The new norms will make personal loans and credit cards costlier and may curb growth in these categories.

The central bank has raised the risk weights for lenders and non-bank financial companies (NBFCs), or the capital that banks need to set aside for every loan, by 25 percentage points to 125% on retail loans, the RBI said in a statement.

The new risk weight will apply to personal loans for banks and to retail loans for NBFCs, the RBI said.

The housing, education and vehicle loans as well as loans secured by gold and gold jewellery will be excluded, added the RBI.

On credit card exposures, the RBI hiked the risk weights by 25 percentage points to 150% and 125% for banks and NBFCs, respectively.

Last month, RBI governor Shaktikanta Das had said that the central bank was closely monitoring some fast-growing personal loan categories for signs of stress.

The RBI has also asked the banks to set aside additional capital against loans to NBFCs, where the risk weight is currently below 100%.

Lenders should put in place board approved policies for exposure to different consumer credit categories, it also said.

“In particular, limits shall be prescribed for all unsecured consumer credit exposures,” the central bank said.

According to the RBI November 2023 bulletin, in October the credit cards continued their growth, supported by cash backs, reward points, contactless cards and UPI-linked credit cards.

According to the RBI data, unsecured personal loans rose 23% from a year ago as of September 22, 2023, while outstanding amounts on credit cards jumped nearly 30%.

Earlier this month, data released by credit bureau Transunion CIBIL showed that delinquencies, defined as loans overdue by more than 90 days, were at 0.84% for all personal loans. However, for loans below ₹50,000 delinquencies were higher at 5.4%.