RBI cuts risk weight on consumer credit to 100%

Mumbai Aug 8 PTI:   In a move that will help lower loan pricing in the unsecured consumer credit space, the Reserve Bank Wednesday reduced the risk weight for all consumer loans, barring credit cards, to 100 percent from the prevailing 125 percent.

Under the standardised approach for credit risk management, all unsecured consumer credit, including personal loans and credit card receivables, which are both unsecured lending, attract a higher risk weight of 125 percent or higher, if warranted by an external rating of the counterparty.

“On a review, it has been decided to reduce the risk weight for consumer credit, including personal loans, but excluding credit card receivables, to 100 percent,” RBI said in the third bi-monthly monetary policy review, which Governor Shaktikanta Das said is a move aimed harmonisation.

“The 125 percent risk weight is much higher than what Basel requires us to maintain. It was fixed at a time when credit growth in this segment was excessively high,” deputy governor NS Vishwanathan said.

The central bank said guidelines in this regard would be issued by the end of August.

The central bank, as a debt manager to the states, has been making efforts to develop the SDL market in both primary and secondary segments.