What the RBI’s risk-weight rejig could achieve, explained in charts
- The recent increase in risk weights on unsecured loans allows the central bank to contain risk without constraining credit to crucial sectors. It could also help curtail household debt, and nudge NBFCs to diversify their funding sources and improve their asset quality.
On 16 November the Reserve Bank of India (RBI) raised risk weights on unsecured loans by banks and non-banking finance companies (NBFCs), and on bank loans to NBFCs. The announcement followed weeks of warnings about the explosive growth in these loans, and marked the first time since 2019 that RBI has used macroprudential tools.