RBI announces stricter norms for unsecured loans

The Reserve Bank of India (RBI) has tightened personal loan norms on November 16, 2023.

Unsecure loan

What is the new rule of RBI about loans

The central bank increased risk weights for personal loans by 25 percentage points to 125%. This means that banks now have to allocate more capital to personal loans, which may cost borrowers more.

The Reserve Bank said the decision to tighten personal loan norms has been taken in view of the "higher growth in consumer credit and increasing dependence of NBFCs on bank loans". The central bank also said it was concerned about "risks associated with the rapid growth of unsecured personal loans".

The new norms will not apply to home loans, education loans, car loans or loans secured against gold and gold jewellery.

Due to the imposition of higher risk weightage, which means that banks' lending capacity is restricted in that segment, the risk weightage on loans to banks and non-banking financial institutions has been increased by 25 percentage points to 150 percentage points and 125 percentage points, respectively.

Recently, Reserve Bank Governor Shaktikanta Das pointed out that credit growth has increased in some sub-sections of the consumer credit segment, and banks are monitoring regulatory systems and risks. He advised that necessary safety measures should be taken to detect and correct them.

Please note that this information is for general information purposes only and should not be construed as financial advice.

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