Most people rely on personal loans and credit cards to meet their financial needs. Indian banks and Non-Banking Financial Companies (NBFCs) issue these unsecured loans. However, recent changes by the Reserve Bank of India (RBI) may make obtaining credit cards and personal loans more challenging.
RBI’s Stricter Rules
The RBI issued a release last Thursday, announcing that banks and NBFCs must now set aside more capital for their unsecured loan portfolios. This requirement has increased by 25% from the previous mandate. For instance, if a bank issued a personal loan of ₹5 lakh, it previously had to set aside the same amount as capital. Now, it needs to allocate ₹6.25 lakh, 25% more than before.
Reasons Behind RBI’s Decision
There has been a rapid growth in personal loans and credit card issuance in recent times, significantly outpacing other types of bank loan growth. This increase in unsecured loans has also led to higher default rates and a reduction in timely payments. To mitigate these risks, RBI has tightened the regulations.
Impact on Customers
With the new RBI guidelines, banks and NBFCs will need to reserve more capital for unsecured loans. This could mean less availability of funds for such loans, potentially making it harder for customers to obtain them. Banks and NBFCs may also introduce stricter criteria for loan approval.
Important Information Table
|Loans Affected||Personal Loans, Credit Cards|
|Issuers||Banks, Non-Banking Financial Companies (NBFCs)|
|New Regulation||Increase in Capital Reserve for Unsecured Loans|
|Previous Requirement||100% of Loan Amount|
|New Requirement||125% of Loan Amount|
|Reason for Change||Increased Growth and Default Rates in Unsecured Loans|
|Potential Customer Impact||Reduced Loan Availability, Stricter Approval Criteria|
📈🔒 This move by the RBI aims to strengthen the financial system and protect both lenders and borrowers from the risks associated with unsecured loans.