A recent survey reveals how personal loans will become cheaper once RBI declares a cut on the risk weightage. On a closer check, it has been revealed that the reduced risk weight is specific to consumer credit, which encompasses personal loans, but not credit card receivables, to 100% limit. Full guidelines were finally issued by August end in the year 2019.
What is the process exactly?
Eventually, the Reserve Bank of India (RBI) will reduce the risk weight for personal loans at 100% from 125% allowing banks to reduce their loan rates of interest specific to these borrowings. Banks will now be responsible to put a significant amount of money based on the risk perception laid down by the Central Bank.
Under the calibration process for Credit Risk Management, consumer credit, including personal loans and credit card borrowings attract a higher risk weight of 125 per cent or above, as warranted by the external sources.
The apex institution named The Reserve Bank of India (RBI) has introduced the reduced risk weight requirement for consumer loans to 100 per cent, as a step to remove expensive loans in circulation.
Presently, the risk weight requirement for loans/borrowings is nearly 125 per cent.
The eased threshold will not be applicable to credit cards atleast.
Let’s throw quick light on what risk weight actually means!
Risk weight refers to the buffer percentage which banks keep safe as a cushion to cover any loan defaults.
RBI’s take is valuable to push consumer spending in the major spending seasons.
Significance of RBI cuts risk weightage
RBI now is focusing on better credit flow, lower cost of funds out of all the other requirements to be met.
The Reserve Bank of India (RBI) has eased the risk-weightage regulations for the banks on the unsecure loan exposure specifically, this is related to non-banking financial companies (NBFCs). This will only help to increase more capital given out to the customers. This unique proposition will only help to make loans simpler and cheaper for a few NBFCs who receive money from different banks.