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RBI Tightens Norms Impacting Unsecured Loans, Reshaping Financial Landscape
November 28, 2023
In a move that’s causing ripples in the banking sector, the Reserve Bank of India (RBI) has implemented stricter capital norms for unsecured retail loans. This encompasses personal loans, credit cards, and exposure to non-banking financial companies (NBFCs), marking a significant shift in the lending landscape for major financial institutions.
Over the past year, retail loans and lending to NBFCs have been instrumental in nearly 50% of the incremental credit growth. However, concerns about mounting leverage and potential defaults in the unsecured lending sector prompted the RBI to introduce measures aimed at fortifying financial stability.
The new rules, with a special focus on unsecured lending, are expected to impact the capital levels of lenders. This could lead to a more conservative approach towards unsecured lending to conserve capital. While large banks and NBFCs are likely to weather these changes better due to their comfortable capital buffers, the impact on capital levels is acknowledged.
Most major lenders are currently above the regulatory requirements, even considering the higher risk weights. Despite potential adjustments to lending strategies and passing on increased costs to borrowers, these institutions are expected to maintain their resilience in navigating the evolving financial landscape. As the industry adapts to these changes, borrowers may witness shifts in lending practices and associated costs.
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