The Reserve Bank of India (RBI) has decided to increase the risk weight on assets for unsecured lending, encompassing personal loans and credit card loans.
Let's understand in detail:
In September 2019, the RBI had reduced the risk weight assets (RWA) requirement for unsecured retail lending, aiming to stimulate consumer spending during the festive season. The move resulted in a reduced RWA of 100% for consumer loans, including personal loans, while credit cards continued with a 125% RWA.
The move was to boost consumer spending in the coming festive season. Credit card had attracted 125% RWA back then, and it was left unchanged.
What has RBI done today?
For banks
Consumer credit, excluding housing, education, vehicle, and jewelry loans, will now attract 125% RWA.
Credit cards for banks will see an increase in RWA from 125% to 150%.
Loans to Non-Banking Financial Company NBFCs will attract 125% RWA vs 100% earlier.
Notable impact on lenders in the unsecured space, with RBL Bank's credit cards leading at 24.33%, followed by Axis Bank, IDFC First Bank, ICICI Bank, and others.
| Lender | Unsecured, % |
| RBL Bank: Credit Cards | 24.33 |
| Axis Bank: LAP, PL & CC | 16.81 |
| IDFC First Bank: Credit card, consumer loans | 15.36 |
| ICICI Bank: PL & CC | 13.30 |
| IndusInd Bank: Credit card, LAP, BL, PL, etc | 12.85 |
| HDFC Bank: Credit cards, personal loans | 11.56 |
| SBI: Xpress Credit | 9.39 |
| Kotak Bank: PL & CC | 8.75 |
| Equitas: NBFC | 3.33 |
| PNB: Personal loans | 2.23 |
For NBFCs
Unsecured loans, ex-MFI loans & the same loans for banks mentioned above, risk weight assets will increase to 125%.
Credit cards for NBFCs will see RWA rise from 100% to 125%.
SBI Cards, with a credit card RWA of 100%, will experience the impact along with other NBFCs.
| Lender | Unsecured, % |
| SBI Cards: Credit Card | 100.00 |
| Aditya Birla Cap: Unsecured, personal & consumer loans | 30.78 |
| Chola: LAP & SME, new business | 30.62 |
| Sundaram Fin: CE & others | 21.60 |
| LTFH: LAP, real estate fin, Consumer loans | 15.61 |
| Shriram Fin: Constn & personal loans | 14.88 |
| IIFL Fin: LAP & digital loans | 14.69 |
| Indostar Cap: SME | 13.75 |
| MMFSL: Others | 12.00 |
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Loans will get a bit expensive, i.e. risk based increase will make loans be priced higher.
Demand may soften a bit, but then, it will get played out over a period of time.
Ex-credit card, unsecured loans risk weight assets is back to where it was in 2019.
SBI card gets most impacted from RBI ruling. Its already witnessing declining margins & lower revolver rate with high credit cost hurting them. This move of RBI, will only burden them more.
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