oppn parties RBI Puts Curbs On Surge In Unsecured Personal Loans

News Snippets

  • The Indian envoy in Bangladesh was summoned by the country's government over the breach in the Bangladesh mission in Agartala
  • Bank account to soon have 4 nominees each
  • TMC and SP stayed away from the INDIA bloc protest over the Adani issue in the Lok Sabha
  • Delhi HC stops the police from arresting Nadeem Khan over a viral video which the police claimed promoted 'enmity'. Court says 'India's harmony not so fragile'
  • Trafiksol asked to refund IPO money by Sebi on account of alleged fraud
  • Re goes down to 84.76 against the USD but ends flat after RBI intervenes
  • Sin goods like tobacco, cigarettes and soft drinks likely to face 35% GST in the post-compensation cess era
  • Bank credit growth slows to 11% (20.6% last year) with retail oans also showing a slowdown
  • Stock markets continue their winning streak on Tuesday: Sensex jumps 597 points to 80845 and Nifty gains 181 points to 24457
  • Asian junior hockey: Defending champions India enter the finals by beating Malaysia 3-1, to play Pakistan for the title
  • Chess World title match: Ding Liren salvages a sraw in the 7th game which he almost lost
  • Experts speculate whether Ding Liren wants the world title match against D Gukesh to go into tie-break after he let off Gukesh easily in the 5th game
  • Tata Memorial Hospital and AIIMS have severely criticized former cricketer and Congress leader Navjot Singh Sidhu for claiming that his wife fought back cancer with home remedies like haldi, garlic and neem. The hospitals warned the public for not going for such unproven remedies and not delaying treatment as it could prove fatal
  • 3 persons died and scores of policemen wer injured when a survey of a mosque in Sambhal near Bareilly in UP turned violent
  • Bangladesh to review power pacts with Indian companies, including those of the Adani group
Devendra Fadnavis to be the next chief minister of Maharashtra after Eknath Shinde agrees to join the government as deputy CM
oppn parties
RBI Puts Curbs On Surge In Unsecured Personal Loans

By Linus Garg
First publised on 2023-11-17 07:11:05

About the Author

Sunil Garodia Linus tackles things head-on. He takes sides in his analysis and it fits excellently with our editorial policy. No 'maybe's' and 'allegedly' for him, only things in black and white.

Of late, there has been a huge surge in both credit card dues and personal (unsecured) loans, leading to the belief that consumers are borrowing more to spend. This has led the RBI to take note and warn banks as this could result in customers defaulting on the loans. For several weeks now, the RBI has been cautioning banks on this. But the banks have resorted to higher lending in this segment as corporate demand for credit is not growing.

Yesterday, the RBI stepped in to make lending to this segment costlier for banks by increasing the limit of capital they have to set aside for providing such credit. The risk weight on such loans has been increased from 100% to 125%. Hence, the capital banks have to set aside has increased by 25%. RBI also increased risk weight on credit card receivables and bank loans to NBFCs.

Increased consumer demand from unsecured, borrowed funds has multiple consequences. It has been reported that by the end of September 2023, credit card outstandings have surged 30% Y-o-Y and personal loans by 25%. For banks, it can lead to bad loans on the books and further stress. For consumers, it might lead them into a debt trap for they are borrowing against future income which might not materialize and might make them default on the loans.

The RBI has done well to take note of the developing situation and make it costlier for banks to cater to this segment. The increased capital requirement will perhaps force banks to be more conservative in allowing unbridled growth in this segment. Easy money policy can be good in times when salaries are increasing and the job market is good. But with salaries not increasing as per earlier years, many companies laying off staff and joblessness increasing, this is not the right time for giving out unsecured loans to people with average credit rating.