Strong Signal by Regulator to Control Unsecured Personal Loans

Summary

RBI has issued a notification to all lenders for inter alia an increase in risk weights by 25% on unsecured consumer
credit (excluding housing, education, vehicle and by gold loans), increase in risk weights by 25% of bank credit to
NBFCs assigned for the AAA-A rated portfolio, excluding PSL-compliant loans and HFCs and review / include sectoral limits for such loans. The personal loans as well as advances to NBFCs have been growing strongly and have been the primary driver of incremental bank credit. We see this as a strong signalling impact to deter growth in the
unsecured space while lenders are well-capitalised to manage decrease in CRAR which is anticipated to be around
25-45 bps. Meanwhile, the proportion of bank lending to larger NBFCs could be pared down as they approach the
capital market, while aggregate dependence of mid-sized NBFCs on the banking sector for funding is likely to
remain high despite an anticipated increase in lending cost by 25-30 bps. This could incentivize securitisation as a
liability source for NBFCs.

Strong_Signal_by_Regulator_to_Control_Unsecured_Personal_Loans