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RBI increases risk weight on consumer credit,

bank credit to NBFCs
RBI flagged the high growth in certain components of consumer credit and advising
banks and NBFCs to strengthen their internal surveillance mechanisms, address the
build-up of risks, if any, and institute suitable safeguards, in their own interest.

The high growth seen in consumer credit and increasing dependency of NBFCs on
bank borrowings were also highlighted by Governor in the interactions with MD/CEOs
of major banks and large NBFCs in July and August 2023, respectively.
 Consumer credit exposure
As per extant instructions applicable to commercial banks,
consumer credit attracts a risk weight of 100%.

Risk Weighted
Particulars $ Risk Weight (%)
Assets
Government
20000 0 0
Securities
Shares 2000 125 2500
Secured Loans 15000 0 0
Corporate Loans 50000 50 25000
Other Loans 2000 100 2000
Cash Balance 5000 0 0
Balance with
1000 20 200
other Banks
Other Assets 6000 100 6000
 Consumer credit exposure

As per extant instructions applicable to commercial banks,

consumer credit attracts a risk weight of 100%.

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
On a review, it has been decided to increase
the risk weights

by 25 percentage points to 125%.

 Consumer credit exposure

In terms of extant norms, NBFCs’ loan exposures generally attract a

risk weight of 100%

For 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
On a review, it has been decided to increase
the risk weights

by 25 percentage points to 125%.

 Consumer credit exposure

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%

by 25 percentage points to 150% for SCBs

On a review, it has been decided to increase

the risk weights on such exposures

by 25 percentage points to 125% for NBFCs

 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)

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%.

On a review, it has been decided to increase

the risk weights on such exposures of SCBs

For this purpose, loans to HFCs, and loans to

NBFCs which are eligible for classification as
priority sector in terms of the extant instructions
shall be excluded.
 Strengthening credit standards

The REs shall review their extant sectoral exposure limits for consumer credit and put in place,
if not already there, Board approved limits in respect of various sub-segments under consumer
credit as may be considered necessary by the Boards as part of prudent risk management.

In particular, limits shall be prescribed for all unsecured consumer credit exposures. The limits
so fixed shall be strictly adhered to and monitored on an ongoing basis by the Risk
Management Committee.

All top-up loans extended by REs against movable assets which are inherently depreciating in
nature, such as vehicles, shall be treated as unsecured loans for credit appraisal, prudential
limits and exposure purposes.
 MCQs for Practice

Q1. Recently, RBI Governor raised concern over the high growth in
certain components of consumer credit and advising banks and NBFCs to
strengthen their internal surveillance mechanisms. On a review, RBI has
decided to increase the risk weights in respect of consumer credit
exposure of commercial banks to _______

A. 100%
B. 110%
C. 125%
D. 150%
E. 200%
 MCQs for Practice
Q2. Recently, RBI Governor raised concern over the high growth in certain components of consumer
credit and advising banks and NBFCs to strengthen their internal surveillance mechanisms. In this
context, Which of the following is not among the measures decided by RBI?
A. It has been decided to increase the risk weights on credit card receivables by 25 percentage points to
150% and 125% for SCBs and NBFCs respectively.
B. It has been decided to increase the risk weights on exposures of SCBs to NBFCs by 25% (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 150%.
C. All top-up loans extended by REs against movable assets which are inherently depreciating in nature,
such as vehicles, shall be treated as unsecured loans for credit appraisal, prudential limits and
exposure purposes.
D. Loans to HFCs, and loans to NBFCs which are eligible for classification as priority sector in terms of
the extant instructions shall be excluded from the changes in Risk weights (the new guidelines).
E. None of the above
Q. Recently (September 2021) NARCL was launched by the
Union Cabinet approving the government guarantee on
security receipts to buy bad loans of lenders. It has been
incorporated under the Companies Act and has applied for
license from RBI. What does R stand for in NARCL?

1. Resolution
2. Reconstruction
3. Restructuring
4. Revenue
5. None of the Above