homevideos Newsfinance NewsRBI's move to raise risk weights on unsecured loans will bolster financial stability, says SBI chairman
RBI's move to raise risk weights on unsecured loans will bolster financial stability, says SBI chairman
The RBI on Thursday 16 November, raised risk weights on unsecured loans, specifically personal and credit card loans, from 100% to 125%. Dinesh Kumar Khara, Chairman of SBI, explained that the Reserve Bank of India’s (RBIs) decision to raise risk weights on unsecured loans, aims to safeguard the financial system from potential risks associated with an increase in these loans.
Dinesh Kumar Khara, Chairman of SBI, explained that the Reserve Bank of India's (RBI) decision to raise risk weights on unsecured loans, aims to safeguard the financial system from potential risks associated with an increase in these loans.
The RBI on Thursday (November 16), raised risk weights on unsecured loans, specifically personal and credit card loans, from 100% to 125%.
"Risk weights have been increased from 100% to 125% in case of unsecured loans, but pre-Covid the risk weight was 125%. It was during the COVID-19 period that it was brought down to 100%.
So now they are back to 125%. At the same time, the increase in weights will ensure that the system stays insulated from any potential risks arising from the rise in unsecured loans in the system," Khara stated in a discussion with CNBC-TV18.
According to Krishnan Sitaraman from CRISIL Ratings, the increase in risk weights was expected, and the RBI had previously highlighted this in the last monetary policy.
He noted that before COVID-19, consumer loans already carried a risk rate of 125%, which had temporarily decreased but is now returning to the previous level. The RBI has also instructed banks to formulate policies determining the extent of lending to unsecured categories.
Krishnan Sitaraman anticipates some impact on credit growth, projecting a growth rate of around 13.5% for the fiscal year, slightly lower than the current rate.
Dinesh Kumar Khara assessed the impact on SBI, stating that the increase in risk weights would reduce the capital adequacy of the unsecured loan book by approximately 30 basis points.
For NBFCs, the expected impact is around 20-25 basis points. However, he remains optimistic, stating that there is sufficient room to support the existing loan book and future growth despite the rise in risk weights.
Watch the accompanying video for the entire discussion.
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