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Regulatory measures towards consumer credit and bank credit to NBFCs

Published on November 17, 2023
Current Context: The RBI has recently implemented regulatory measures aimed at addressing the rapid growth in consumer credit and the increasing dependency of Non-Banking Financial Companies (NBFCs) on bank borrowings.
Regulatory measures towards consumer credit and bank credit to NBFCs
  • Consumer credit exposure:-
    • Consumer credit exposure of commercial banks: As per extant instructions applicable to commercial banks, consumer credit attracts a risk weight of 100%. On a review, it has been decided to increase the risk weights in respect of consumer credit exposure of commercial banks (outstanding as well as new), including personal loans, but excluding housing loans, education loans, vehicle loans and loans secured by gold and gold jewellery, by 25 percentage points to 125%.
    • Consumer credit exposure of NBFCs: In terms of extant norms, NBFCs’ loan exposures generally attract a risk weight of 100%. On a review, it has been decided that the consumer credit exposure of NBFCs (outstanding as well as new) categorised as retail loans, excluding housing loans, educational loans, vehicle loans, loans against gold jewellery and microfinance/SHG loans, shall attract a risk weight of 125%.
    • Credit card receivables: As per extant instructions, credit card receivables of scheduled commercial banks (SCBs) attract a risk weight of 125% while that of NBFCs attract a risk weight of 100%. On a review, it has been decided to increase the risk weights on such exposures by 25 percentage points to 150% and 125% for SCBs and NBFCs respectively.
  • Bank credit to NBFCs:-
    • In terms of extant norms, exposures of SCBs to NBFCs, excluding core investment companies, are risk weighted as per the ratings assigned by accredited external credit assessment institutions (ECAI). On a review, it has been decided to increase the risk weights on such exposures of SCBs by 25 percentage points (over and above the risk weight associated with the given external rating) in all cases where the extant risk weight as per external rating of NBFCs is below 100%.

Question:

Q.1 What is the new risk weight on consumer credit exposure of banks and NBFCs as per the RBI’s recent measure?
a. 100%
b. 125%
c. 150%
d. 175%
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