RBI Enhances the Risk Weights in Respect of Consumer Credit Exposure of Commercial Banks

Circular No. RBI/2023-24/85 DOR.STR.REC.57/21.06.001/2023-24, Dated 16.11.2023

The Governor in its statement flagged the high growth in certain components of consumer credit and advising banks and non-banking financial companies (NBFCs) to strengthen their internal surveillance mechanisms, address the build-up of risks, if any, and institute suitable safeguards, in their own interest. The high growth seen in consumer credit and increasing dependency of NBFCs on bank borrowings.

In this context, it has been decided to effect the following measures as under:

(a) Increase the risk weights in respect of consumer credit exposure of commercial banks/NBFCs

As per extant instructions applicable to commercial banks, consumer credit attracts a risk weight of 100%. On a review, it has been decided to increase the risk weights in respect of consumer credit exposure of commercial banks (outstanding as well as new), including personal loans. However, the housing loans, education loans, vehicle loans and loans secured by gold and gold jewellery are to be excluded. The risk is increased by 25 percentage points to 125%.

Similarly, Consumer credit exposure of NBFCs has also been raised to 125% in place of 100%.

(b) Increase the risk weights in respect of Credit card receivables

As per extant instructions, credit card receivables of scheduled commercial banks (SCBs) attract a risk weight of 125%3 while that of NBFCs attract a risk weight of 100%.

On a review, it has been decided to increase the risk weights on such exposures by 25 % points to 150% and 125% for SCBs and NBFCs respectively.

Further, it has also been decided to increase the risk weights on exposures of scheduled commercial banks SCBs to NBFCs by 25% points, over and above the risk weight associated with the given external rating.

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