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What RBI’s increase in risk weights mean to the borrower?

By: Gopal Agarwal

The Reserve Bank of India (RBI) has increased risk weights for consumer loans, credit cards, and lending to non-banking finance companies (NBFCs). This increase in risk weights could mean higher interest rates for borrowers. 

Risk weights impact the capital adequacy ratio of lenders. Lenders have to set aside more capital against loans with higher risk weights. This could make loans more expensive for borrowers. 

The mandatory risk weight requirement has been increased by 25 percentage points. This could lead to higher capital requirements for lenders and higher lending rates for consumers. 

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Loans will get a bit expensive, i.e. risk based increase will make loans be priced higher.

Demand may soften a bit, but then, it will get played out over a period of time.

Ex-credit card, unsecured loans risk weight assets is back to where it was in 2019.

SBI card gets most impacted from RBI ruling. Its already witnessing declining margins & lower revolver rate with high credit cost hurting them. This move of RBI, will only burden them more.

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